Buying property with DH and brother - legal situation?

[hopskipandthump]

My brother and I are planning to buy a buy-to-let flat as an investment. We each have some money to invest long-term, but would need a mortgage for approx 40% of the property value.

Since we are both self-employed with fairly erratic earnings, we can't get the best-value mortgages. DH, on the other hand, has a 'normal' job and if we buy all together, that would make the mortgage cheaper.

Does that mean that we 'have' to then own the property in three equal shares? Or can we do it so that DH and I have a 50% share and my brother has a 50% share?

We all have full trust in one another, but I imagine we ought to have some sort of legal document in place to set out ownership, and also what happens in various eventualities (the death of one or more parties, what happens if one person's circs change and they want to sell/be bought out etc. etc.)

Does anyone have any experience or advice?

Many thanks.

bump

Sorry, no advice, but I would go an see a solicitor and make sure it is all done properly. They will be able to give you several different options.

Just remember that if your DH is involved there may be tax implications that out way any better mortgage deal.

Good Luck!

Thank you magichamster.

I was in a similar situation with my DH and his (grown up) son. We formed an LLP and now have three BTLs. It works well and is very tax efficient. It means that we have commercial mortgages and 5 years ago got super cheap ones, it's different now I think.

Oh, I am interested in the LLP situation, Unexpected. Any advice where to look for more information about that?

I imagine that means you pay less capital gains tax when you come to sell properties?

Have you spoken to a mortgage adviser?

When I was investigating buy to let properties we were told it was the rental yield that would decide the mortgage, not my income.

The bank sent their valuer out to look at the property, discuss market rent and whether the house would achieve that, profit margins etc. My income was not even up for discussion.

Yes have spoken to a mortgage advisor. We can get a mortgage without my DH, based just on rental yield - however we would get a better value mortgage with a salaried person involved (because it's a safer bet).

There are lenders such as The Mortgage Works and BM Solutions that will lend based on the rental income that the property will generate. However TMW will take into account salary and if it does not meet their criteria then they will look at plausibility. So if you live in a 2 bed house and are wanting to buy a 4 bed they will think back door residential and decline. If you are living in a 4 bed and buying a 2 bed then obviously they may agree it as it is plausible.

BM Solutions are only accessible via a broker, I am not 100% sure whether TMW are or not.

Fee's with BTL mortgages are quite high, and if you are buying for it to be a pension pot then you should seriously consider a repayment mortgage. The lender will only look at what the interest part would be anyway. You would still need to make sure that the figures stacked up for your own peace of mind though.

Any other questions feel free to PM me.

hopskipandthump

Speak to another advisor. BTL rates are never going to be great, and actually TMW and BM are sourcing as one of the cheapest right now.

UnexpectedItem - what tax efficiencies do you get from an LLP? Reading up on it, it seems to be a tax-transparent structure so that you still pay all the tax you would pay if you owned the property as individuals. Am I missing something.

FinancialWizard, thanks, I'll check out the providers you mention.

I'll pm you

You can divide up the shares any way you wish as long as it adds up to 100%.
Each of the registered owners must be a party to the mortgage but you can have additional borrowers so you could have just the 2 of you registered as owners and the third as an extra borrower but I suspect the lender may prefer all three to be on the land register.

If you did go the shares route, and I appreciate others have steered you in an alternative direction, then it is normal to draw up a formal deed to set this out (a deed of trust). This is not registered with the Land Registry but the fact that you each have a specific share is often reflected on the register by what we refer to as a joint proprietorship restriction - see our online guidance

www.landregistry.gov.uk/public/joint-property-ownership

Wow, thanks LandRegistryRep - very helpful!