Legalities of buying parents house

[JapanRed]

Hi all,

What are the legalities of buying my mother in laws house and her renting it back from me?

Firstly, she’s not on her last legs by any stretch. Would expect her to live 10+ years easily, if not 20. Completely independent. Still drives. Has all her marbles. So it’s not a move designed to avoid care costs etc.

Reason for it is she’s asset rich but cash poor and it might be good to release some equity. She’s just quit her part time job as she hates it (I don’t blame her - at her age she shouldn’t have to do a job she hates). Equally this transaction would need to benefit me and my wife (without wanting to screw over the mother in law).

Say the house is worth £230k, could I buy it at £180k and then her rent it back? It wouldn’t be worth my hassle to buy it at market value as the rental income would equate to a return of 3%.

Hope this doesn’t come across as trying to scam my MIL, it genuinely isn’t. In actual fact I’d rather not have the hassle. It’s the MIL that has mentioned it. She thinks it’s a better idea than equity release.

Failing this, are there any other options available to her as she needs a regular income? (I’m guessing her pension isn’t enough). I don’t know much about equity release but from the adverts I’ve seen it comes across as quite a poor deal for the homeowner.

Thoughts appreciated.

Edited by JapanRed on Friday 31st January 15:45

[BoRED S2upid]

You would have to pay stamp duty at second property rates.

[wrencho]

So you want to "help" but aren't happy with a 3% return

[JapanRed]

wrencho said:

So you want to "help" but aren't happy with a 3% return

No not after tax and everything else. It’s quite a big ask for me and the wife to take on a mortgage, pay second property stamp duty, stump up £40-50k deposit etc. Lowers our future purchasing power if we ever decide to move. I can think of a million things I’d rather do than get involved in this. Purely exploring the options for her sake that’s all.

You think I’m being unreasonable?

[bobmedley]

Are you prepared to evict her if she doesn't pay the rent?

[JapanRed]

bobmedley said:

Are you prepared to evict her if she doesn't pay the rent?

No not at all. She’s been so good to me and my wife in the past that I would do anything for her. Treat her like my own mum really.

[Carbon Sasquatch]

So you free up some capital for her - if she spends none of it on anything other than rent - how many years does she have until it runs out ?

What do you do when she can no longer afford the rent ?

[Greshamst]

If you need a mortgage, you may find it more difficult as it would become a regulated mortgage once you are renting to a family member

[boyse7en]

JapanRed said:

No not after tax and everything else. It’s quite a big ask for me and the wife to take on a mortgage, pay second property stamp duty, stump up £40-50k deposit etc. Lowers our future purchasing power if we ever decide to move. I can think of a million things I’d rather do than get involved in this. Purely exploring the options for her sake that’s all.

You think I’m being unreasonable?

While i can understand reluctance to put your finances at risk, it does seem a bit odd to be trying to make a profit out of the enterprise. You are already asking for, effectively, £50k profit from the outset, then more on top from the rental.

Equally, if you did own the property, you would have to pay for repairs and upkeep etc.

Edited by boyse7en on Friday 31st January 16:25

[robbieduncan]

I am no expert but my understanding was than buy-to-let mortgages excluded renting to family.

[bobmedley]

If you don't evict, then she can have a rent free house whilst you pay the mortgage on it.

You should read the info in this link re the tax implications;

https://www.co-oplegalservices.co.uk/media-centre/...

Edited by bobmedley on Friday 31st January 16:32

[JapanRed]

Thanks guys sounds like it’s as I suspected. A bit much hassle. Is there any other way for her to free up some capital? Or does she need to get another job?

[Carbon Sasquatch]

Best case, I'd get a quote for equity release & look to match their terms.

She's likely to get a lot less capital than she might think......

Alternatively sell up & downsize

If she might live 25 years, then releasing all the capital, just to pay it as rent is a zero sum game.

[BoRED S2upid]

robbieduncan said:

I am no expert but my understanding was than buy-to-let mortgages excluded renting to family.

A technicality. They never check. As long as you pay they are happy.

[JapanRed]

Carbon Sasquatch said:

Best case, I'd get a quote for equity release & look to match their terms.

She's likely to get a lot less capital than she might think......

Alternatively sell up & downsize

If she might live 25 years, then releasing all the capital, just to pay it as rent is a zero sum game.

Equally if she downsizes and only releases £100k she still won’t have enough to live 25 years...

[Beetnik]

1. Take a charge over the property.
2. Lend her the money (no reason why you can't do this with monthly advances to her) at whatever rate of interest you agree. Interest to roll up.
3. Money back, with interest, on sale.

[Killer2005]

BoRED S2upid said:

robbieduncan said:

I am no expert but my understanding was than buy-to-let mortgages excluded renting to family.

A technicality. They never check. As long as you pay they are happy.

Two things, firstly they do check and secondly scheme abuse and therefore if you get found out any future mortgages would be hard to get.

Also lenders couldn't lend when the vendor is to remain in the property so that would cause further issues.