AIBU to think that we should take out a buy-to-let mortgage for PILs?

(38 Posts)
Saffra Fri 22-Feb-13 19:13:51

DH's parents need to downsize because of financial problems, it's a highly stressful situation. They are 60 & 62. Basically, they need to sell their own lovely home because they can't remortgage. They have just sold their own house and need to move out next week.

They were told that they had an offer in principle for a £20k mortgage for a £130k property - the only decent-ish place that they could find on that budget - and that offer had been accepted. However, today, they've been actually told that the mortgage deal has been declined.

They mortgage adviser has suggested that DH take out a buy-to-let mortgage for £20k with the PILs giving us the equity from their house sale. He's mentioned something about the fact that they pay DH 'rent' (which I don't understand).

I want us to help, but am concerned about the implications - tax, ability for us to get another mortgage if we wanted to move, what happens if DH were to die, etc. etc. etc. We have a meeting with a mortgage broker tomorrow morning and we need to be prepared really.

Is this likely to end in disaster?? (PILs are slightly useless with finances). What's the implications??

zoobaby Fri 22-Feb-13 22:07:09

If I understand correctly... the PILs need to borrow £20k for a house costing £130k... this means they'd have a loan to value ratio of 15%. Surely a mortgage broker would/should be able to find them a that loan from somewhere, even with a slightly higher interest rate. That would be a mortgage advisor, not a financial advisor. You easily find mortgage advisors located in offices of the large real estates. They are independent of the estate agents though. They are free because, just like financial advisors, they get their money from the banks and building society.

As for the other scenario, if you get a buy-to-let then you would own a percentage of the flat (15%). If they were paying you 'rent' then you would only pay tax on any money above the amount of interest repayments as these are tax deductible. You would need to declare to the tax office, but wouldn't actually pay tax if they only pay equal to the amount of interest. Any extra that goes towards paying the capital would be taxed at your personal income rate. I also believe that service charges for flats are tax deductible too. Capital gains tax is a real possibility, but that only comes off the profit made from the sale, not the total value.

Do they intend for DH to inherit this flat? £130k (actually £110k) is not going to bust the inheritance threshold by any stretch of the imagination unless they have another mansion somewhere.

The biggest issue is the whole lending money to family and getting caught up in unpleasantness. Money and misunderstandings have ways of creating big problems. Discussions need to be held and a solicitor needs to put whatever is agreed into a proper contract.

Vinomcstephens Fri 22-Feb-13 22:09:01

Hi, if you want to PM me (I'm a mortgage adviser) I'd be happy to give you some advice regarding this - it's unlikely you could "buy" the property if your in laws are to remain in the house they would continue to live in as legally it is presents a minefield. Way too complicated to get into in a brief message so do send me a message if you'd like to discuss this further smile

Vinomcstephens Fri 22-Feb-13 22:11:06

Sorry - just re-read your OP - you're looking to buy a property for your in-laws to live in, not buy the one they currently live in - sorry! Much less complicated but again if you'd like some (free! I'm not touting for business!!) advice I'm more than happy to help.

zoobaby Fri 22-Feb-13 22:13:37

Sorry, should say that age will be a negative for them, but mortgage advisors have access to a lot more deals than the general public has direct access to. They might still be able to sort this for themselves. If they don't make the payments, then they'd have the bank to contend with and their relationship with their family can remain intact.

zoobaby Fri 22-Feb-13 22:15:56

Sounds like a good idea to chat with Vino.

firesidechat Fri 22-Feb-13 22:17:28

For so many reasons I wouldn't even consider this.

You would effectively become their landlord and have to do everything a landlord would have to do by law. The money they pay you would have to be declared to HMRC and would be taxed accordingly.

Not even sure if you can get a buy to let and let to family members. Some mortagage providers won't let you do this.

The mortagage advisor doesn't have to live with the consequences of this decision, so easy for him to say.

zoobaby Fri 22-Feb-13 22:18:48

Sounds like a good idea to chat with Vino.

Saffra Fri 22-Feb-13 23:33:09

Thanks for all your comments. It's been incredibly helpful to read all your POVs. I've shown DH the replies and we have decided that we are going to cancel this meeting tomorrow with the mortgage guy.

Potentially, it could all turn rather awkward and I would hate that. It's also a massive burden from a liability perspective - tax, legal. Ugh! I can do without that really - as much as I love ILs.

Thanks again.

Morloth Sat 23-Feb-13 03:28:39

Don't rush into anything here. They can rent or in the very very worst case they could crash with you. Both are preferable from your point of view then getting stuck with a great big debt.

Sort out the immediate future, i.e. find them somewhere to rent and then have a relook at the mortgage situation.

Don't be pressured into anything.

thelittlestkiwi Sat 23-Feb-13 04:14:27

It does sound really complicated and not something you should be rushed or pressured into by next week. Cancelling the meeting is probably a good idea.

I don't think they can just 'give' you the money they have to put down on a house. There are tax implications of them giving you money which could give you problems in the future.

In your situation I'd get proper, independent advice from a solicitor and financial advisor and have a good think.

zoobaby Sat 23-Feb-13 09:34:48

Sounds wise. Hope things can work out for them.

greenfolder Sat 23-Feb-13 09:41:27

if you can afford to lose 20k, go for it. but either take the 20k out of your own home or borrow it elsewhere.

it seems uneccessarily complicated to do otherwise. suspect the mortgage advisor is offering solutions they can sort out, rather than looking at the biggerpicture

CwtchesAndCuddles Sat 23-Feb-13 10:36:47

We had a buy to let mortgage for a while, we bought a house to renovate and let out but ended up selling ours and moving in. It was very clear in the terms of our buy to let mortgage that we could not rent to family.

Your situation is a potential minefield, make sure you have good legal advice and check out what you would be liable for.

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