Best Way to End 'Renting' House to Family Member

[HedgehogDay]

We (DH and I) have got ourselves into a situation, with the best of intentions - there are a few issues I should probably put on the relationships board - just thinking about the legal aspects on this thread.

Just over 11 years ago DH and I) bought a 2nd property using my redundancy lump sum as a deposit - my daughter and her partner immediately moved into it paying us a monthly amount just covering the mortgage.

During the last 11 years DH and I sold the UK house we had been living in and used the proceeds to emigrate - renting in our new country.

We kept the repayment mortgage on the UK house going, occasionally paying the monthly mortgage from our own funds when my daughter and her partner were between jobs or tight on money and couldn't cover the payment. We also dipped into our own savings to carry out maintenance on the house and replaced the bathroom and gas boiler.

Then, just over 4 years ago DH and I decided to put down proper roots in our new country and wanted to purchase a property here - the locked-in deal on the UK mortgage was coming to an end so we decided to discuss my daughter and her partner getting their own mortgage to buy the UK property from us at an amount to cover the outstanding mortgage and the amount we calculated we were owed (our initial deposit and reimbursement of the amounts we had paid on the mortgage and on the new bathroom and boiler - plus the amount we would need to pay in Capital Gains Tax) - due to the rise in the housing market this would still leave a reasonable amount of equity in the property (approx 50K) (Property Value about 200K at this point).

My daughter and her partner couldn't get a mortgage due to their income still not being high enough - so we agreed to re-mortgage and release the amount of equity we felt the house 'owed' us (to use as a deposit on a new home for ourselves overseas) - but in order to keep the monthly payments affordable for them, we had to go for an interest only mortgage. The locked in rate comes to an end in 10 months time by which time there will be 18 years left on the mortgage.

We warned them that, due to our ages, we won't be able to keep re-mortgaging to get the best deals, especially as we live abroad now, and hope to retire in about 4 years time. So the latest mortgage fix is probably the last we can get. On a recent visit to see them we mentioned that in 10 months time, the mortgage will switch to the standard variable rate instead of the low fix we currently have - so the monthly payments will go up by about 300 pounds a month (in today's terms).

Despite both being in better jobs now, my daughter and her partner tell us that they can't afford to pay more each month and don't think they can get a mortgage either. The current mortgage is a buy-to-let mortgage and the bank asked us to get my daughter to sign a rental agreement when we entered into the current mortgage - the rental agreement was in her name only.

We envisaged the whole arrangement would end with my daughter and her partner buying the property from us for the minimum possible (once all fees and tax liability were paid) but it looks like they won't be able to borrow enough to do so.

We can't afford to fund the 300 pounds per month to keep my daughter and her partner paying the 700 pounds a month they currently pay (full market rent would be about 1,400 pounds per month in their area).

Setting aside the emotional aspects, how can we end this current situation as 'nicely' as possible?

Worst case scenario is they stop giving us money to pay the mortgage with - we don't have spare money to pay it, due to now having a mortgage ourselves. Presumably we would need to evict them legally or the bank would do so if we defaulted on the mortgage and it would be our credit rating taking the hit.

Any ideas please?

Depends on your goals here. You're plainly not into this for gain - you've been subsidizing your daughter all these years, you just can't afford to take a loss on the mortgage now. You're saying your daughter can't afford to buy you out. But would she be able to get a mortgage on the outstanding amount if you gifted her the existing equity?

This is a really difficult situation for you. I had something similar.

My advice would be for you to sell the house, thus paying off the mortgage, then gift your daughter an amount which she can use as a deposit to buy a property within her mortgage means.

You say her Partner, so I'm assuming not married, so she would be well-advised to protect whatever funds she has with a property adjustment order before buying with a non-spouse partner.

They will have to accept that they cannot remain in a house they cannot afford. It might be awkward for you, but you'll need to bite the bullet sooner rather than later.

Thank you for replying -
After the mortgage, fees and tax were paid there would be approx 80K of equity in the house - it gets complicated as we have 4 children in total - and it is a bone of contention (and source of much guilt with me) amongst her siblings that we weren't able to buy additional houses to give all siblings an equal 'leg up' - but she was the eldest and first one to find herself in a tricky situation (young with surprise baby on the way) so we did what we thought was best at the time.

The siblings are understandably upset that we even considered handing over the equity to the eldest daughter as they feel it's helping her even more than we already have. They consider cheap rent for 11 years is more than sufficient help and it's my eldest daughter's own problem that she didn't use that time to save or forward plan.
(Those are the issues I'll post on the relationship board - wishing I could turn the clock back!!)

If we used the equity to share amongst the siblings I don't believe any of them would be earning enough to use it as a deposit to purchase a property. Although the cash would help my second child who is actively saving hard for a deposit to buy property; third child could use it as a deposit and financial cushion to leave home and rent somewhere and youngest is still at school so it would boost his university/first car/house deposit fund for the future.

Thank you again, maybe I'm answering my own question here - just remains to see how on earth we manage to bring this to an end and still maintain relationships. Really hoping we don't end up having to take legal eviction action.

Thank you for the reply.

Did you manage to maintain a good relationship with the people involved - if you don't mind me asking?

Not married just yet - but a firm plan in place to do so. Yes, I'll definitely mention that to her if they do decide to buy their own place - although I don't think, even with a share of the equity, that they could afford to buy anything in the area they currently live in.

I feel for my daughter as their jobs and kids schools are all close to their current house - I'm finding it especially hard that we've tried to do our best for them but ultimately they can't stay where they can't afford.

Do you think your daughter is telling you the truth about not being able to get a mortgage?

If a few years ago it was worth 200k and you were gifting them 50k in equity they needed a mortgage of £150k. I think that was doable for most people with a dual income a few years ago. Appreciate one of them might be a SAHP or something but it seems off for the time. Might be an issue now.

I would make one final offer to sell to them at family rates. Then put it on the market. Don’t offer deposits or gifts.

It sounds like your daughter is the golden child and if I were one of the other children, I would be furious to hear you wanted to gift her all the equity in your house.

Do you really want to torpedo three other family relationships because your eldest child is crap at forward planning? She's had plenty of warning and (as you said) years of cheap rent.

Do what is fairest within your means. Give them plenty of notice, sell the house and split the proceeds between all of your kids.

It's a classic case of the old phrase "no good deed goes unpunished".

You have tried to help, but ended up getting in a really difficult situation which has caused a lot of friction and bad feeling.

I don't know about you, but in my case there was a definite air of non-understanding when it comes to the basic financial equation of "you cannot have what you cannot afford."

It was just assumed that we could afford the situation (same as yours, we had a 2nd mortgage for the house in question), because we had let it go on for quite a long time.

Some younger people don't seem to grasp that you have to make huge sacrifices in order to afford to buy your first home. I didn't even own a decent handbag until I was well into my 30s! I used a carrier bag! Had a crappy old banger of a car, cheap furniture including a sofa I had got out of a skip, regularly had to put things back in the supermarket because I didn't have enough money.

Anyway - I had to say NO, we can't go on supporting you like this and you'll have to work it out for yourselves, including how and where you are going to live.

They weren't happy about it and there was a lot of moaning and complaining, but I stuck to my guns and they got their heads around it. Relationship with daughter is absolutely fine now!

(And I agree with previous poster about showing favouritism to the eldest child. You need to be fair with the others or resentment will continue to build and that's no good for anyone.)

I think you have given her plenty of opportunities to buy the house herself. Now I think you should sell it and split the equity among all children. It's unfortunate for your eldest but she's had plenty of years on cheap rent she could have saved throughout. Really I don't think your eldest does deserve any equity...but for the sake of the grandchildren. I'm sure your other children all have it tough paying full rent for many many years. They deserve the help more honestly.

your eldest could go to council and try and get a council house. Or just rent for the going rate. I'm sure they can afford it.

The clarity of hindsight has hit me squarely in the face - and I can see how it does look like our actions have set my eldest daughter apart as the Golden Child - that was absolutely not our intention - but we completely accept that we should have thought the longer term ramifications through properly - we just wanted to help.

You are right, I agree, my other children have every right to be furious - I wish we had set a time limit and given each subsequent child a period of say 5 years cheap rent in that house each, to give them each an equal opportunity to save up. I had hoped that by acting as the 'bank' for my eldest for a period of time, that she would be able to stand on her own two feet and then we could move on and help the next child and so on - but the eldest has soaked up the help, remained reliant on our goodwill and I strongly suspect, as a previous poster suggested, that she hasn't always been fully honest with us.

I definitely don't want to damage my relationship with my other children any more than I have already - I know (and I have told each of them) that we made a massive mistake and am desperate to make sure that we try to mend some of the hurt with what we do next.

I also have a mortgage on a flat that my eldest lives in and the plan is for him to buy it off me at some point, the difference is I’m in a position to either do the same or hopefully as they have good jobs give a large deposit each (around a quarter of a flat) to my other two DC.

In your situation I would explain to the daughter you need to sell up, give her for sample six months notice and then if you can
afford give your DC a lump sum each. Not necessarily all at the same time but when you think they need, such as towards a deposit or a car etc.

I think if your DD really wanted to buy the property she would have found a way as it doesn’t sound a very expensive property.

I think the only way out of this (inadvertent) mess is to tell your Daughter there is no way to remortgage therefore the house will be sold come what may when this term ends.
Then split the proceeds equally between all the children.
It is up to them all as fully fledged adults to save the rest and they should be gratefuL for any cash gift. I would also speak to each of the other children, and apologise for helping the eldest for so long at the cost of the others, they may not forgive you but a genuine apology is a good start.

Your daughter has been very spoilt and favoured and needs to recognise that, grow up and take responsibility for her choices.
Tell her in no uncertain terms that should she not move by the agreed date you will be in serios financial difficulty, and you are not young enough to recover funds lost now. Rope in other family member to drive this home.
Be prepared for the pushback and be prepared to take eviction action if neccessary.
If she cares for you she will understand the situation and move out.

Thank you for the replies - very much appreciated - quite a consensus of opinion and suggestions of the way forward - thank you all.

On a recent visit to see them we mentioned that in 10 months time, the mortgage will switch to the standard variable rate instead of the low fix we currently have - so the monthly payments will go up by about 300 pounds a month

Bearing in mind how long it takes to sell a house, and that you have already told them the 10 month limit on the mortgage deal, I would be looking to get the house ready to market now.

They need to start looking at their alternatives and making arrangements accordingly.

You will also have a tax hit from the capital gains (this happened to us too and we had to pay quite a bit). Plus the costs associated with selling, legal fees, and dealing with all the contents, removals, storage, etc. So your costs are going to be significant.

Your daughter and her partner have been sticking their heads very comfortably in the sand and you're not doing them any favours by continuing to enable them.

And I'd add that if you want to repair the damage with the other kids DD1 has already had more than her share. She doesn't get any more at this time.

I thought you weren’t allowed to use a buy to let mortgage to rent the property to a family member? But be that as it may I think your daughter and her partner have had a very long time to save / get better jobs/ work out their finances. You have been more than fair, you have lost out financially . I think you need to say that the arrangement is coming to an end when the current mortgage finishes and they need to sort themselves out.

I thought you weren’t allowed to use a buy to let mortgage to rent the property to a family member?
There are a number of lenders that allow this, any mortgage broker would be able to help you find one.

Thanks, I didn’t know this.

You need to stop favouritising your eldest, how horrid for your other kids OP.initially reading I thought she must be an only child not 1 of 4! This has happened in my family and its really really unfair and I don't care what excuses you give for it, your being a bad parent by giving it all to one when the others have done nothing wrong. Sell the house and split the equity 4 ways or if anything give eldest less as she's has her share all these years. Gosh which mother does this to her other kids and thinks it's OK!

I can't see how it would get legal ! I think simply you have to just sell the house and divide up the assets and divide it amongst your children as best you can. It sounds like it would be helpful for others to get some deposit cash too.
There's no need for eviction notices etc unless your daughter is being unreasonable about it, you can tell her in plenty of time that you are going to sell and give her ample time to decide what she wants to do. Unfortunately she's been living beyond her means ans benefited from subsidised accommodation but that doesn't mean it has to continue.

Give her notice to leave, put it on the market. Work out how much help she's had over 11 years from market rent to what she pays and all the times you covered her. Give that same amount to the other 3 and then divide whatever is left between the 4 of them or keep It yourself.

I suspect that your eldest daughter won't be thankful and will drag this out and make it horrendous for you.

Yes fair enough to give them notice now, and put it on the market.
What is the likelihood of them refusing to move out of their own free will and force an eviction so they can register as homeless with the local council? Quite high I would have thought? In which case I would get them gone first then sell the property once theyre out. It would also give you a short term uk base whilst the sale is going through.
I would also consider not giving her a share of the sale proceeds as she's had the benefit of living there cheaply for many years and just dividing it between the others.

OP, I think you might be in for a bit of a shock about the law surrounding evictions in this country. It can be expensive, time consuming and extremely difficult to evict someone. It will almost certainly take more than 10 months.

There is no ground which permits you to evict someone because you want to sell.

If you want to serve a s21 notice, you will need all sorts of documentation regarding gas safety inspections, deposits etc.

If you want to serve a s8 notice, on the grounds of rent arrears, there needs to be at least 2 months' worth of arrears, both at the time you serve the notice and the time it is in front of a judge (if it gets to that stage).

I would take some legal advice quickly, especially if you only have a 10 month window. Your daughter has been there for 11 years and it doesn't sound to me like she is in any hurry to leave.

Thanks for all the replies.

I don't know if they will willingly move out - I sense they (wrongly) think I've got loads of money and can afford to subsidise the additional mortgage payments - they definitely don't seem to have their own future plans in place. It's likely they will want something from us to prove to the council that they will be homeless - I don't know if a letter from us, as parents, will meet the criteria the council look for.

If they don't move out or stump up the additional cost of the mortgage in 10 months time, then the mortgage will fall into arrears and it will be the bank evicting them. Hopefully, it won't come to that as they will realise that it's in their interests to move out so we can sell the property and then there will be the maximum equity to be shared out between the siblings. So they stand to gain more by making the process as easy as possible.

As far as giving them notice goes - the last agreement (with a 1 year duration) was signed just over 4 years ago - we haven't renewed the tenancy so I believe we are now on a periodic rolling tenancy - so we wouldn't have to give a reason for ending the tenancy.

It wouldn’t be a letter from parents though, it would be from you as landlord. For the council to take it seriously I think you’d have to formally serve notice, not simply write a letter.