Any financial gurus out there. House buying worry.

[Sprackles]

Just after some thoughts.

 

My brother is not in a position to get a mortgage in his own right but the house he lives in is being sold on by the landlord. He has been there many years so does not want to move as it his home.

He has asked if I would buy it and he would make the payments. A broker has confirmed I can get a mortgage after initial checks. It would be for 10 years only. He can put up the deposit and fees.

Bit morbid I know but my mother is 83 and has dementia so won't be around forever and his intention would be to pay it off when she dies and the estate is settled or continue until the mortgage is over after which time I will turn it over to him. (Have a copy of her will so know what is happening)

 

Here is where my questions are.

Should add my own mortgage is over in 4 years time

 

Since this is not a buy to let as he is a relative and the banks don't like relatives renting from each other it will be purchased a a 2nd home.

 

What are the implications for me should I cease work and need to claim benefits etc ?

Would this be classed as my asset or could I get some legal document arranged which outlines my brother is the beneficial owner ?

 

When time comes to turn it over or brother pay off remainder of the mortgage would there be problems by my transferring ownership for nothing, would the taxmans eyebrows be raised and wonder what I am up to.

 

Loads of other things going through my mind but all I can see are pitfalls that may cost me but I want to help my brother stay where he is.

I am really torn with this as my my mind says no but heart says help bro.

 

Cheers.

[subsonicnat]

See a solicitor..

[NorfolkAYA]

They way I see it is the bank doesn't need to know who your renting it to. Get a buy to let mortgage and rent it out to your brother for the mortgage amount, at the end of the term when your brother is ready to pay the remaining balance and sign the house over to him.

[Rupert]

10 years is a long time, what if?? he has accident, he meets and moves a chick in, loses his job yuo two fall out over a game of snooker,

Protect your self while you help your brother.

 

You buy the house and charge him rent then gift it him later,

 

No hiding anything if you remortgage your own as the money is yours to do with as you wish.

[AVB]

They way I see it is the bank doesn't need to know who your renting it to. Get a buy to let mortgage and rent it out to your brother for the mortgage amount, at the end of the term when your brother is ready to pay the remaining balance and sign the house over to him.

 

 

That's what I thought but then you would have to pay tax on the rental income so probably not a good idea.

[Granett]

Agree with getting legal advice, but suspect that you'll get lumped with the 3% extra stamp duty for 2nd homes which might decide the venture for you.

[vampire]

See a solicitor..

This

[Eyefor]

See a solicitor..

 

...and whilst you're there, get the solicitor to draw up a proper agreement to cover the arrangement and all eventualities (including new partner / death of either of you / etc) to be signed by you and your brother.

 

Please don't rely on something scribbled on the back of a fag packet?

[Lloyd90]

1) You'd have to pay 3% extra stamp duty (on top of regular stamp duty) if you already own a property.

 

2) Will itbe rented? If he is making the payments and it's your house then I'm sure the government would class that as rent. You would have to pay either 20 or 40% tax on that income legally. (Although unlikely they would ever know).

 

3) What if your brother can't pay at any point? Will you be happy to pay for him living their at your expense?

 

4) Why can't your brother get a mortgage himself? The answer to this question might be very important, if he has failed to pay loads of debt and has terrible credit then he clearly is bad with money and makes bad financial choices, is this someone you want making such an important payment on your behalf?

 

5) if you had any personal issues, e.g. Lost job etc would you be able to afford both your own mortgage (if you have one) and his mortgage if he was somehow unable / not paying?

 

 

Hope it all works out for you mate, those were just some important questions I'd be asking myself!

[dougall]

yes to see solicitor.

why not buy in your Brothers name/you act as guarantor + draw up an agreement between the 2 of you to cover each other./life assurance in trust to each other to cover worst case.

Do you trust and believe your brother can/will pay?Could you afford both yours and his?

atb.

[Lloyd90]

They way I see it is the bank doesn't need to know who your renting it to. Get a buy to let mortgage and rent it out to your brother for the mortgage amount, at the end of the term when your brother is ready to pay the remaining balance and sign the house over to him.

He'd have to pay an extra 3% stamp duty, pay tax on the 'rental income' and also as I understand pay capital gains tax on any appreciation on the value, even if gifted to his brother.

 

It all adds up and could easily come in at several if not tens of thousands of pounds, all depends on property price etc.

 

Also people don't often like to mention this, but wouldn't that be mortgage fraud? ... intentionally not telling the bank that he is buying it for his brother etc and then not telling them it's 'rented' to him?

 

Again very unlikely, but I would how that would look on any future financial applications or even a SGC/FAC renewal?

Edited July 25, 2017 by Lloyd90

[NorfolkAYA]

 

 

2) Will itbe rented? If he is making the payments and it's your house then I'm sure the government would class that as rent. You would have to pay either 20 or 40% tax on that income legally. (Although unlikely they would ever know).

 

3) What if your brother can't pay at any point? Will you be happy to pay for him living their at your expense?

 

4) Why can't your brother get a mortgage himself? The answer to this question might be very important, if he has failed to pay loads of debt and has terrible credit then he clearly is bad with money and makes bad financial choices, is this someone you want making such an important payment on your behalf?

 

5) if you had any personal issues, e.g. Lost job etc would you be able to afford both your own mortgage (if you have one) and his mortgage if he was somehow unable / not paying?

 

 

Hope it all works out for you mate, those were just some important questions I'd be asking myself!

 

Only pay tax on rental income over £2500 tho, it's also easy to loose the rest in paying your wife etc as a "property manager"

[NorfolkAYA]

He'd have to pay an extra 3% stamp duty, pay tax on the 'rental income' and also as I understand pay capital gains tax on any appreciation on the value, even if gifted to his brother.

 

It all adds up and could easily come in at several if not tens of thousands of pounds, all depends on property price etc.

 

Also people don't often like to mention this, but wouldn't that be mortgage fraud? ... intentionally not telling the bank that he is buying it for his brother etc and then not telling them it's 'rented' to him?

 

Again very unlikely, but I would how that would look on any future financial applications or even a SGC/FAC renewal?

You only pay tax on rental income over £2500, it's easy to loose the rest by employing your wife etc as a "property manager"

 

Isn't capital gains tax on anything over £250000 or something ridiculous?

[Twistedsanity]

I was very close to my brother for many years until he lost the plot one day, turned really nasty when the green eyed monster got involved. It's great that you want to help out family but see a solicitor, get your brother to pay for the solicitors fees and make sure that he has no legal rights whatsoever over the property until you are paid in full, after all you are paying for it so why should he have any legal rights

[Sprackles]

He'd have to pay an extra 3% stamp duty, pay tax on the 'rental income' and also as I understand pay capital gains tax on any appreciation on the value, even if gifted to his brother.

 

It all adds up and could easily come in at several if not tens of thousands of pounds, all depends on property price etc.

 

Also people don't often like to mention this, but wouldn't that be mortgage fraud? ... intentionally not telling the bank that he is buying it for his brother etc and then not telling them it's 'rented' to him?

 

Again very unlikely, but I would how that would look on any future financial applications or even a SGC/FAC renewal?

 

 

Mortgage broker told me about the stamp duty so I am aware of that hit.

 

It's not rental but brother will be transferring the monthly mortgage payment to me to pay it. I suppose the problem would be proving that is not income.

 

The tax aspect i was unsure of as the broker would not comment as he said it was not his area of expertise and I would need separate advise for that.

 

I am intentionally telling the bank I am buying for family, not renting, it was the advisor who said it may have been cheaper to go down the buy to let route but the banks don't look kindly on renting to relatives. It wasnt a route I suggested. Not sure how that is fraud ?

 

Thanks for all the replies anyway. Certainly got the grey matter churning over.

[AVB]

 

 

Mortgage broker told me about the stamp duty so I am aware of that hit.

 

It's not rental but brother will be transferring the monthly mortgage payment to me to pay it. I suppose the problem would be proving that is not income.

 

The tax aspect i was unsure of as the broker would not comment as he said it was not his area of expertise and I would need separate advise for that.

 

I am intentionally telling the bank I am buying for family, not renting, it was the advisor who said it may have been cheaper to go down the buy to let route but the banks don't look kindly on renting to relatives. It wasnt a route I suggested. Not sure how that is fraud ?

 

Thanks for all the replies anyway. Certainly got the grey matter churning over.

 

 

The Bank will want to be sure that your income minus outgoings gives you enough money to spare to afford the additional mortgage. If you can then they won't be interested whether you rent it or not. If you need the rental income (or the money that your brother gives you) to cover the mortgage then bank will put you on a BTL mortgage. I don't think they are interested whether your brother rents it from you or Jo Bloggs. But if it is a BTL mortgage then the money your brother gives you will be rental income.

[Sprackles]

 

 

The Bank will want to be sure that your income minus outgoings gives you enough money to spare to afford the additional mortgage. If you can then they won't be interested whether you rent it or not. If you need the rental income (or the money that your brother gives you) to cover the mortgage then bank will put you on a BTL mortgage. I don't think they are interested whether your brother rents it from you or Jo Bloggs. But if it is a BTL mortgage then the money your brother gives you will be rental income.

 

I have had income check done and I can meet both whats left of my mortgage and this one.

 

As I understand it NatWest are willing to lend according to the broker but he also said they don't like BTL for family members as they are not sure you will kick them out if for any reason they stop paying or fall out with you.

 

The worrying bits for me now are the Capital Gains Tax aspect that has been mentioned, even if I sign over the house technically for nothing.

 

I want to help him out but not at my expense as it were.

 

 

[Mungler]

See a solicitor.

 

The other thing is your brother's exit is dependant on your old dear leaving him something.

 

At work we are seeing plenty of older people who are from the fit post war generation but whose minds have gone. It means they roll on not knowing what day of the week it is and ultimately requiring full time care - that costs a lot and if it's provided by a local authority then there will be a statutory charge over the old dear's assets / property.

 

Accordingly I can see a set of circumstances where your brother gets a lot less than he's banking on.

 

That will leave you with a gaff on your toes and a brother to evict.

 

Christmas lunch will never be the same again.

 

Anyhoos, good man for being the grown up and having to wipe your brother's bottom.

 

Given who I am and what I do I seem to end up doing it for all of my family.

 

I am reminded of the top 2 of my favourite expressions:

 

1. No good deed goes unpunished

2. The path to hell is paved with good intentions

3. You can't reason with the unreasonable

4. You can't beat being right

 

I digress...

[AVB]

 

I have had income check done and I can meet both whats left of my mortgage and this one.

 

As I understand it NatWest are willing to lend according to the broker but he also said they don't like BTL for family members as they are not sure you will kick them out if for any reason they stop paying or fall out with you.

 

The worrying bits for me now are the Capital Gains Tax aspect that has been mentioned, even if I sign over the house technically for nothing.

 

I want to help him out but not at my expense as it were.

 

 

 

 

There are three aspects to consider

 

- The legal aspect in respect of ownership especially when things go bad. As Mungler said you need a Solicitor for that.

- The tax situation in respect of capital gains and income tax. You need an accountant for that.

- The mortgage situation in respect of who will lend and under what conditions. The mortgage broker should be able to advise on that. Although your broker seems to be giving strange advice. If you can afford the second mortgage without your brothers contribution then it doesn't need to be BTL so not sure what they are referring to Natwest not liking family involvement. It sounds like your broker is putting it through as a BTL.

[CharlieT]

Buy it yourself and then rent it out to your brother at a fair market rent. When the time comes, you can sell it to him at a price that ensures you are not out of pocket tax wise, but should you choose, reflects any rent he has paid.

[Lloyd90]

It might also be helpful if you said what figures are involved.

 

One options MIGHT be to remortgage / take equity out of your own house and buy the other house outright for cash, then you won't require a mortgage whether buy to let or not and can happily let your brother live their.

 

You would then obviously have the debt levered against your own home and may be reliant on your brother to pay you as promised.

 

You may also still have to pay capital gains tax on any appreciation when you sign the house over to your brother. I would seek advice regarding this.

[Flashman]

Family and friendships go out the window when it comers to money.

 

Worst case is you will have to pay for your brother's accommodation if he can't/won't pay "rent" in some form.

 

Tough decision, especially if you have shown some interest in helping, as it's hard to back out once expectations are raised.

[Archie-fox]

Family and friendships go out the window when it comers to money.

 

Worst case is you will have to pay for your brother's accommodation if he can't/won't pay "rent" in some form.

 

Tough decision, especially if you have shown some interest in helping, as it's hard to back out once expectations are raised.

 

 

seen this happen!!! family member purchased a house for his brother, brother refused to pay rent 18 months later there in court fighting it out.

[Good shot?]

Family and friendships go out the window when it comers to money.

 

Worst case is you will have to pay for your brother's accommodation if he can't/won't pay "rent" in some form.

 

Tough decision, especially if you have shown some interest in helping, as it's hard to back out once expectations are raised.

 

 

This in my opinion is the way to view it.

Edited July 26, 2017 by Good shot?

[Sprackles]

Well today I pulled the plug.

 

Brother is obviously upset as it has been his home for a good few years. His only hope is the new purchaser will let him remain.

Landlord wants a sale agreed by the end of this month and has 2 buyers already lined up so even if I wanted to, I don't think things could be finalised by then.
The capital gains aspect killed it for me together with a potential tax bill on perceived rental.

 

I feel pretty low that I could not help but as my daughter said, I would feel even worse if it all went belly up and I faced losing my own home too.