Parents buying somewhere for DD - is it a good idea

[ctownsie]

Hi, mainly looking to see if this a good idea or not as I'm clueless.
DD is 18, in her first year of med school in London - 6 year course.
My parents recently sold their London home the area went through a lot of gentrification in the time they lived there (over 50 years) so the house ended up selling for over 2 mil.
They relocated, downsized and have a lot left to play with. They've topped up their already pretty good pensions.
I have 2 kids and im an only child. DD18 and DS15.
My parents are now wanting to buy DD a flat in London that she can share with friends. They've found a 4 bed they and DD like near uni and friends, for a little over a million.
They are planning to put down a deposit of £500,000 or so, this will be all of DDs inheritance. Then she can rent the other 3 rooms for roughly £1250-£1350. My parents said they will deal with all the landlord related tasks. They are 74 and 75 so I'm not sure that's the best idea but ok.
DD says she already has 2 friends who would be able to stay there.
My parents think this is a much better alternative to DD looking for somewhere to live for the next 5 years.
AIBU to be worried this might not be the best idea? Are there any flaws they might not have considered?
They'd still have money left should DS want the same though DS hates London and would never go to London again if he would so I doubt he would need somewhere so expensive.

I can see you have decided on a smaller property which hopefully means you are daughter has her freedom, nolonger wondering how you might get a £500,000 mortgage to cover the total costs. It is a great idea that your parents want to help your daughter. Can't they just fund student accommodation? I realise this is not an investment but it does mean your daughter has her freedom and doesn't have to be a live in landlord.

OMG

How on earth can they land someone else with a mortgage! This is a ridiculous scheme. How on earth would they know if your dh would qualify for a mortgage at the age he is and for the amount?

Better if they put the £500000 in trust and your dd lived on the interest presently, it would give your dd £25580 interest to live on without anyone else being involved with management or having tenants and dd would still have the £500k at the end of her university days

Actually it wont need to be a buy to let mortgage as the other occupants will actually be lodgers and not tenants. This means they will have fewer rights and are easier to get rid.

Can I suggest this one https://www.rightmove.co.uk/properties/140740715#/?channel=RES_BUY

Decent lease 3 reasonable sized bedrooms and 2 bathrooms. Just need to be sure it comes with vacant possession! Mortgage in your daughter's name, you are guarantors and the friends are told you are the owners, not your daughter.

Why not buy outright a Two bed flat. The second
room can pay the Bills/council tax etc. Can grandparents gift it now - would be hers without inheritance tax in seven years.

. A financially liberating asset.
the only issue is whether the gp are worried that gifting so young will leave her vulnerable in event of marriage/cohabitating. I'd seek legal advice

That’s far too much pressure to put on an 18 year old. What happens if she drops out or can’t find work at the end of the course? Far better to purchase something outright.

What are the inheritance tax implications here? This could cause a massive issue.

Id also be very concerned your son could really miss out here.

Your parents need a financial planner.

Bath Building Society offers mortgages to students based on the assumption that there will be lodgers. Possibly others.

We looked into it, but DD, who also studied medicine, did not feel ready to take on the responsibility. Perhaps a good thing as one of her flat shares was a nightmare, though financially it would have been a terrific move. She agrees that it is something she perhaps should have done. I agree that she had enough on her plate and if she did not feel ready, she was right to make that call.

My parents did this for me, a very long time ago when a four and a half bedroom Victorian terrace cost £250k. 6 of us shared and I lived in that house for eight years.

On the one hand, it was brilliant, and I really mean that. I had security, I could decorate and the financial freedom it gave me let me follow a slightly wobbly career for a bit until I found my feet.

Being a landlord, though, was a right royal pain in the arse. And there are tensions, and not just about who's paying the mortgage. But then there are in all flatshares. Five other people is a lot to manage when you are young and clueless and have never called a plumber yourself before.

So I think your idea of a smaller place is great.

I think its absolutely fine to buy her the property - they are very comfortable financially and its much better than her paying ridiculous London rent. But I agree about the friends paying rent - that could become awkward if one was financially struggling etc. I think she would probably be better off getting a female lodger who doesn’t know her financial circumstances and have a proper contract with them.

OP - to protect your DD from the risk of being vulnerable in marriage/cohabiting due to having a flat, one solution could be to put the flat in trust. I don’t know how this works in practice, but I’ve heard it’s an option that’s quite popular for people with lots of assets they want to protect (e.g. money, property). You will need proper financial advice on this from a financial professional though.

I don't think that being a student landlord would be much fun and it would make you very different to all your other students. It would be better for your parents just to support her living costs.

A third way OP, when I was at Uni, I flat shared with someone whose parents got him a house and it was rented to students , ( it was owned cash) the income provided him rent money and living money and the excess went into savings account.

They could buy for 500K a 2 bed in desirable areas in London, cream off (taxable) over 2K a month income.

Your DD just lives like all her cohort renting and enjoying her student days meanwhile has a great investment that she can either sell for a profit once she graduates, move into or even re-mortgage against for her first property with an investment property for her own retirement.

There's obviously inheritance tax to think about, capital gains tax if your parents later decide they want/have to sell the property, the additional 30% stamp duty charged on a second property and, as you mentioned, I don't necessarily think it's a great idea for your parents to have to shoulder the responsibility of being landlords at this point in their lives. Practical matters aside, I would also consider what type of personality your DD has - my ex bought a property very young and really never had to go through the flatshare dramas that most of us do, meaning he still has no idea how to live with other people.

I'm not sure this is a good idea. It will put your DD on an unequal footing with her flatmates. If they want to invest in property it would be better to leave your DD out of it and just rent it out. They want you to take on the mortgage? Absolutely not.

Yes, but usually your landlord/tenant contract is an arms-length transaction with a stranger, not you contributing to buying you mate's first flat outright or funding their lifestyle (the OP did mention profit).

One of the main things to think about here is I don’t think it’s possible to buy a 2-bed flat in a desirable part of London for £500k. I live in London (zone 3 - Acton/Ealing), and 2-bed flats around here sell for over £500k. It is a generally very nice area with good transport links, but not particularly central. I think a 2-bed flat in a desirable area of London costs more like £700k minimum. I wish I was joking.

Definitely buy her own 2 bed place outright, and let her rent out a room.

Two very close friends bought a house together and it all went terribly wrong when one got a boyfriend. So stressful for all parties. Avoid this situation and let her buy on her own.

Lucky girl!! Very generous of your parents.

Like others have said take your time with this one. It's a huge amount of money. It seems a great idea on paper but she may not last the course anyway and someone will end up saddled with a super expensive flat in London to look after.

Friends did similar for their ds in Durham. Bought 4 bed house for ds and friends. It really didn't work- ds was seen as proxy landlord (not his parents) and constantly asked favours re. rent, extra people, bills etc. In the end ds moved out, and left parents renting at reduced rate to other peoples' kids.

As long as they live another 7 years, otherwise your daughter will need to pay IHT

From your point of view OP, would you be taking out a mortgage on a property that you have 0% ownership of? Presumably you would have to borrow on your own home as no lender will loan on a property you don't own.

This would mean that DD could sell it, keep the cash and you would still have to meet the mortgage repayments.

The same applies if the GPs buy a smaller property with cash. If it's entirely in DD's name she could sell and have the cash to do whatever she wants with.

DD could meet anyone. It wouldn't take a reasonably smart man very long to see £££ signs and easily take advantage of her. If she thinks she is 'in love' she could easily be persuaded to sell up. And then spend the money on what? Cars, holidays, drugs.

Do you really want her having all that cash at her disposal at such a young age? I think you would be making her very vulnerable to predators.

The mortgage wouldn't be in DDs name - ideally they'd like DH or I to take on the mortgage but we are only just mortgage free so that's another deterrent.
So you'd be a joint owner with your dd. It'd be a BTL mortgage either repayment or interest only basis? There could be a problem with your dd living in the property if it was a BTL. You'd best speak to an experienced mortgage broker to find out what's possible and the implications. There would be the usual tax implications for both you and your dd. tax would be due on the rent over the £7,500 tax free rent a room out allowance.
I think it would be best for Gp's to buy a smaller place outright in DD's name- either a one bed with a separate kitchen so dd could get a lodger and not have a lounge (very common in London now, especially as a student) and having just one lodger would be uncomplicated. Alternatively, a two bed, still with just one lodger, though £500k wouldn't go far for a decent two bed in London.

it sounds like a bad idea to me, for a few reasons

1. unfair on other grandchildren? (i dont know how many grandchildren are in the picture, but it seems very unlikely theyd be able to do this for all of them?)
2. saddling an 18-year-old with a 500,000 mortgage. omg!
3. someone will need to handle all of the rent/upkeep related stuff while granddaughter is busy in her medical degree, who?

Few things to consider, many already addressed. If she owns she will lose out on any benefit for buying in future as first time buyer. Parents may have a lot now, but what if in a couple months one (god forbid) got diagnosed with terminal cancer? What if they need care? The gift could have tax implications and may not be enough left to give DS equivalent. Buying with someone else bad idea, makes selling complicated if one wants to sell and other doesn't - or if one has change in circumstances and gets in debt. If DD marries new partner could claim against her equity. Have they looked into other options such as buying themselves, placing in trusts etc?

They ought to buy her her own place outright. Saves a lot of faff for everyone.

What a fantastic opportunity for your daughter. Don't jeopardise it!!