Posted on 16 June 2010 by Sue
My elderly mother needs to move near family. Her house has been on the market for 18 mths. Can we buy the retirement flat with a 2nd m/g if she pays the interest as rent - or possibly my daughter could get a 1st time m/g if we find the capital? Mum would still need to pay interest as rent. Are these possible options? Where should we go for expert advice to minimise costs and losses?
There are several options open to you and you will need to weigh up the pros and cons of each one before deciding how to proceed.
If you decide to buy the property with a buy to let mortgage you will find that the choice of mortgages available to you is severely restricted. This is because any mortgage on a property occupied by a family member falls under the regulation of the Financial Services Authority and few Lenders offer regulated Buy to Let products. The interest rates and fees on these products tend to be quite high.
You could by the property as a home for dependent relative and apply for an ordinary residential mortgage. In this instance the Lender would not expect any rent to be paid by your mother and may decide not to lend if this is the intention.
If your Daughter was to buy the property the same choices apply, unless she is also going to live in the property. In this case your Mother would just have to sign a legal document giving the Lender prior claim on the property should your Daughter fall into arrears and the Lender take possession. The mortgage would need to be affordable using your Daughter's income alone and this option may restrict her from obtaining another mortgage in the future.
Apart from the last choice, it is likely you will need to find a deposit of around 25% of the purchase price.
I recommend that you seek independent Mortgage advice and because there are tax and legal differences which you need to take into consideration I recommend that you take independent advice from a Solicitor conversant in tax matters.
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