sitting tenants ad mortgages?

[tatt]

a relative who is on benefit is in financial difficulty. If she sells her house and rents she loses her benefit and has nothing to pass on to her daughter. We're wondering if the daughter could buy the house with sitting tenant (her mother) and let it to her mother at a market rate. Mother gets to stay in her own home, daughter keeps part of the value of the house because she'd buy at tenanted price and once the capital was exhausted the mother would get income support. Anyone see snags in this and if not how do you find a mortgage company that lends on tenanted houses?

[FestiveFrex]

The main problem that springs to mind is what happens if the relationship between mother and daughter deteriorates? I've seen too many cases of parents selling or giving assets to children to serve a purpose (avoidance of inheritance tax, etc.) only for the whole thing to turn sour when the children decided they couldn't wait for mum or die to pop their clogs and have taken steps to get them out/sell the asset.

[LIZS]

You really should go to a proper adviser who can explore all the financial issues here - possibly Citizens Advice Bureau can help here. There are going to be issues here around tax (the daughter will be taxed on the rental income, as well as being liable for Capital Gains Tax on any future sale) which would reduce the potential value of the property to her. Presumably, if the mother has financial difficulty, then she has also looked into borrowing against the value of the property herself, rather than the daughter basically doing so. You also need to address what is fundamantally causing the mother's financial difficulties, and how much releasing the capital in her home gives only a short-term fix, but still gives a longer-term problem for both mother and daughter. Most mortgage companies would do Buy to Let packages but with a sitting tenant they might ask more questions.

[tatt]

thanks. I hadn't thought about tax on rental income. Don't think tax on capital gains would be very important as daughter could buy jointly with her husband and two capital gains exemptions would cover any likely gain for quite a few years and then taper relief would cut in. Its only a small terraced house in a part of the country with low property prices. As the mother gets benefits I don't think increasing her mortgage much more is really going to be feasible - I suspect she's done that as much as they will allow before asking me for suggestions.

As for the long term problem - I've tried to get her to live within her income for many years and have never managed to keep her solvent for more than a few years. Because the family have helped her in the past she has a good credit record and can get credit cards despite promising to cut them up. She is receiving some psychiatric help but I don't see anything helping.

if the relationship deteriorated and mother had to move out she'd not be much worse off than now when she'll probably have to move out anyway.

[tatt]

anyone else?

[bonym]

Hi tatt - I work in a mortgage brokerage and don't know any lender who would take a property with a sitting tenant as security. The daughter can purchase on a buy to let basis but would have to put her mother on an assured shorthold tenancy. This not only protects the lender's interests but also the daughter's if the relationship were to break down. However since November 1st, many lenders will not consider buy to let mortgages where a relative is the tenant as these are now regulated by the Financial Services Authority (whereas most buy to let mortgages are unregulated). Capital Home Loans will do this type of mortgage, however will not allow DSS tenants. You could try NatWest as they are generally pretty flexible. hth

[tatt]

thanks bonym sorry to take so long to reply - very stressful house move (not)in progress.