Buying a house to let to my niece. Any pitfalls to consider?

[Lastgig]

I put a post up earlier in the year regarding a windfall I will be receiving shortly. I had some great advice.
My parents had 9 grandchildren, 7 are graduates. Most own their own homes.
My niece has a difficult life. Her partner abused her and she has been left with two children and lives in a council flat with black mould and rats.
Her son is turning 10 this year and she can apply for a house. The average wait time is 7 years.
She does some work but her maintenance is only £60 per week for both children and her ex partner earns £200+ per day. He is a builder. He makes sure he gets paid in cash.
Her parents can't/won't help her.
I'm happy to buy a house and rent it to her and eventually give it to her. I can't do that for three years due to my share holding restrictions.
Sadly I can't do this for all my nieces and nephews.
Any thoughts on downsides? I will give her a lifetime tenancy.

I think I'm leaning towards a ten year landlord situation unless I can keep things low key.
Posters have given me lots to think about. If the house remains mine my DH will inherit it. We are very similar over helping family. My son might not be if he thinks the niece is 'arse sitting'. He's a very driven individual. My daughter is happy with her lot. Within the decade her circumstances will change.

Due to her SEN she hasn't had the career of her fellow nieces and nephews but she is kind. She nursed me through my illness. I would like to help her and others rather than being a knob with my new bling (I did that when I was younger😁).

This seems like a good idea to me, although I don’t know the nuances of all of the legal aspects as to which idea is best.

Your niece may have made poor choices relationship wise but the child who is a part of your family is completely blameless and living in inadequate housing. Children suffer very poor health and even die from living in properties with black mould. If you have the money to made a difference to this child in this way, what a remarkable thing to be able to do.

You sound like a lovely, kind, thoughtful human and I would never want to discourage someone from doing a good thing but solid legal advice will be required before you go ahead. Unfortunately, there are many rules and regulations to follow as a landlord, if she is on UC/ benefits then you’ll need to be careful about the arrangements to ensure they see the tenancy as “commercial”, below-market rent can limit allowable tax deductions, the house will need a whole range of works to be compliant. You’ll also need to file tax returns etc.

If you are charging a peppercorn rent, granting a life time tenancy and intend to leave the property to your niece UC won’t pay as this is deemed as a contrived tenancy.

To claim UC tenancy has to be less than 7 years.

Personally I would look into shared ownership for her. You can gift her the ‘reasonable’ deposit she gets her foot on the housing market but has the back up of the being able to claim UC for the rental element if her situation changes and pays her own mortgage for the owned part. When her financial situation improves she can stair case to buy more of the home.

Google share to buy.

Neice is then in charge of living conditions, Less resentment from family. If you wanted to leave a further amount as inheritance you then still have the option.

My personal experience is that money can destroy family relationships and any perceived “unfairness” can cause a lot of resentment.

Others will be more familiar with whether your niece can still qualify for housing benefit/UC etc with your plan, because what will you do if she can’t pay the rent because her benefits are stopped?

How much do you anticipate she will inherit from the godmother? Won’t that cause issues with the other family members if she’s got a forever home from you at a low rent and a large inheritance too?

I think your plan is incredibly kind, but you need to think it through carefully, maybe speak to your own children about it. If you want to give her a home for life - can you buy the niece a house now and then update your will so that she doesn’t receive any/as much after you die? Or put it in trust for her as a life tenant, but the capital of the house goes to your own children/all the nephews and nieces?

I'm the niece in this situation.

A family member offered to buy XH out of his share of the equity in our house so that DC and I wouldn't have to move home and schools. The plan was for us to get a joint mortgage because I couldn't get one on my own, but for family member to just retain their percentage in the equity while I paid off the mortgage, thereby increasing my stake in the equity.

For various reasons this didn't work out. In the end, family member paid XH and also paid off the mortgage that XH and I had. Family member paid solicitors to draw up paperwork so that now family member is effectively my bank. The house is in my name and I am paying off the mortgage by paying family member directly (mortgage is now enormous and wouldn't be feasible for me outside if this private arrangement).

At some point, I will have to sell in order for family member to get their money back (with interest). We have a basic agreement to review when my youngest turns 18 and leaves school. I'm now thinking of sounding out family member about waiting until youngest graduates, if they go to university. Because I'd like to have enough space for DC to yo-yo back here until they're established in work themselves. But I accept that that may not be possible and I know I will have to move somewhere much smaller sooner or later, and DC may have to move out at that point if I can't accommodate them.

Ultimately, family member is just absolutely amazing and has probably had the single biggest impact on my life and definitely in terms of getting me back on my feet after divorce. I can never thank them enough or truly repay them for their kindness - I don't think them getting their money back, even with interest, comes close to what they did by allowing DC and me to stay in our home and not further disrupt lives and education.

I don't know if an arrangement like this (either joint mortgage or with you as the mortgage lender) is an option for you, but it might be worth looking into. Although I think the legal fees were quite a lot to set it all up.

The arrangement of @ThreeTortoisesTrotting sounds like a private mortgage.

https://en.m.wikipedia.org/wiki/Private_mortgage

In a private mortgage arrangement you would buy the property in nieces name but have a charge registered against the property to secure your interest in it. Niece would then make payments towards buying the house. If the house was sold the charge against it would ensure the solicitor settles any debt owed to you before your niece was given her equity.

Clear documentation should be kept of payments made.

There are no tax implications for lending/being repaid the money that I'm aware of but if you charge interest that would be taxable income.

Your niece wouldn't be able to claim housing benefit because she wouldn't be renting but the home owner.

The main issue with renting the house to your niece or allowing her to buy it on a private mortgage in my opinion is that for the next few decades potentially your niece strives to find rent or mortgage money from a (relatively) limited income to give to a relative that doesn't need the income (as they are already a millionaire) and would be happy to gift her the house anyway when they die.

https://england.shelter.org.uk/housing_advice/benefits/claiming_benefits_if_you_rent_from_family

OP, I hope you have made adequate and meaningful provision for your own Dc at the point that they need it.

Do not rely on future money from your DH's family etc, you neve know what is round the corner.

My DC are well provided for but they will both work in the professions. One medical, one civil service.

The had a charmed early life and later we lost the lot. Ten years of trying to get back on our feet.
We lent money, got burgled, had a business partner steal from us. A stalker and nutty landlords. You couldn't make it up. My parents died, I nearly died.
My children know the value of a pound and won't waste money (one bulk buys from Costco and the other is the ebay queen).
My husband thinks it's farcical that we are getting this dosh this late in life. Could have done with it when I was adding up my shopping going around Lidl. However many people and charities will benefit and that's a good thing.

None of the success has been gained by treating others badly and the company is one of the most ethical I've ever worked for. I'm now disabled but it didn't cost me my job. They have plenty of diversity.

My DPs did the same thing for a DN, so one of our DCousins.

We warned them not to do it as we knew that if there were any problems the wider family would side with her and it had the potential to get nasty.

She hadn’t been in 3 months when the calls started from neighbours about the late night parties and she also stopped paying rent. Luckily her DF persuaded her to leave after a few months.

I think you’re well meaning but possibly a bit naive about the repercussions for you and possibly your DC and DNs after your death.

If you do decide to go ahead I would read very carefully on your responsibilities as a Landlord. How to evict a tenant, how long that may take and what the likely repercussions might be.

You’ll also have to work out how much it’s going to cost you each year on things like insurance, maintenance and gas checks abd possibly legal fees, plus refurbishment if the house should she leave.

You say that you’re unwell. If I was unwell possibly one of the last things I’d be looking at is becoming a Landlord to a family member. Are you going to be ok sorting trades out to maintain the house, possibly in emergency situations and long term?

Yes, @Winter2020 , it's a private mortgage. Family member sends a mortgage statement every year and has to include it in their tax return.

It might not be right for you, OP. But I was thinking that if the landlord/tenant scenario wasn't going to work out then it might be an option and your niece would own the property from the outset. You can still leave it to her in your will.

I'm paying the mortgage at a rate I can afford, rather than market rate. As agreed with family member.

Did you read past the first few words of that paragraph or just start typing and stop reading any further, to this?

so long as they are not in a relationship - living in the same property, the relation takes on the responsibilities of a LL and there is a proper tenancy agreement in place

People can rent out to pretty much anyone, inc family members, its quite common, subject to the above, the tenant can still claim the housing portion of UC.

Only if the property has been rented out before, if you buy the property, your niece moves in and starts to rent it then that be will be a contrived tenancy and no housing benefit will be awarded.

I think you need to work out if you planning on doing this and trying to get her rent paid for by universal credit (which won’t work) so it won’t cost either of you very much or if you are genuinely renting it to her. If it’s the second what are your thoughts on buying it for her and giving it to her?

Would suggest thinking about all the ways in which this might not work as your envisage and how you’d react- eg she moves some unpleasant bloke in, she stops paying the rent, house gets trashed etc.

I’m not suggesting any of these things is likely but they are all possible. If you can say “I’d be fine with that” then great. If not you need to have a plan in case of that eventuality.

Faod I’m not saying you shouldn’t do it, just that doing kind acts for a family member can get complicated so it’s good to think through this sort of thing beforehand.

Lots of good advice given in response by other posters, I just wanted to say how kind you are. I'm sure your niece and nephew will benefit massively from your gesture.

Lots to think about.
I think the main objection will come from my son when she gets her inheritance in 10 years plus if I gave her the house.
It will be £500k+
I think the best course of action is to buy the house and let her live in it. It will then pass to my husband who wouldn't change anything. Both my DC are well paid/will be. They are decent people.
If she claims UC and doesn't get it so be it. I can afford it.
I don't want her children to grow up in poverty if I am able to change that. She's seen enough abuse as have her children.

That is incorrect.

So long as it is a genuine commercial tenancy and the Niece wasn't previously living there rent free, then the fact they are related is not in itself an issue.

In my case, my close relative was evicted, she had no where to go, other than temp accommodation, i had the means to buy a house and rent it to her, she initially claimed UC, now back in work, DWP had no issue paying HB to her and we made it perfectly clear our relationship, all they wanted was a valid tenancy agreement, with relevant eviction clause if rent not paid.

That isn't true. My son bought a house specifically for me to live in and UC pays the rent. No one else had rented it before me. There were a lot of questions but UC are satisfied this isn't a contrived tenancy and pay the local housing allowance rate and I top up my rent with my PIP. All above board.

Hello posters. I thought you'd all like an update. This has turned to poop. Another nephew has asked for help and wants me to do the same for him. I could.
However my son has tabled the fact my niece will only need my help for four years as both children will be secondary age. He doesn't see why my niece can't work full time then and earn £35k (she is a talented hair colourist). In our neck of the woods that would mean a shared ownership three bed. He said mum they gave you two years and she is going to live in a house owned by you and dad, then us whist we do the grunt. He's a civil servant our daughter a trainee medic.
I'm bloody torn.

No idea why you’re torn OP. Your DS has a valid point. As for being a medic, you can get more an hour in Costa than you can being a Junior Doctor. It’s not the well paid profession it used to be.

Sorry Op, your niece is not homeless. She has got a roof over her head. Personally I wouldn't start giving freebies away as it's going to cause so much resentment between other nieces/nephews, and your own children.

I read your thread when you first posted.
While you are undoubtedly trying to do a good deed, I’m afraid you seem woefully naive about how money makes people behave. It can sour even the closest of relationships.
Is the nephew asking for help the sibling to the struggling niece? In which case, if he suffered the same poor parenting, does he not need assistance too? It’s very difficult to get big sums of money involved and not be upsetting someone else who feels they are just as deserving. Tread carefully would be my advice - you might be leaving your own kids to sort out a shed load of family fall outs.

Honestly it’s people like you that give me hope in this awful world🥰 the good karma you’ll receive from this will outweigh any bumps (if any) along the way I think x

There's too many hoops to jump through and potential pitfalls - legally and emotionally, some of which you're now discovering. This will only continue. She has secure housing for life so I agree with one or two PP who've said help her improve the flat.

Also your son may not know that your niece may be better off by not working full-time, even though she can. I would also report the ex and his employer for tax dodging.