Renting from Parents

Swifty55

Swifty55

Swifty55

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I've tried getting on the property ladder but due to my credit score I am unseccsful in securing a mortgage, albeit I have a 10-15% deposit.

I find renting pointless since you pay all that money and get nothing for it.

My parents have offered to buy the house for me to pay the monthly installments. So I would effectively be renting from them.

Regardless of me buying or them - the house will be mine eventually.

So the questions are;

How would we go about this? Would they require landlords insurance, etc?

Rent - It goes as an income, but if they're not making any profit since I will be paying the price of the mortgage - would they still be liable for tax? Are they to inform HMRC of such a thing?

I'm guessing a contract wont be needed as its sole purpose is for me, I would just be a tenant for the period of the mortgage.

I'm also confused a little on the Capital Gains Tax or Inheritence. If they leave the house in their will to me, am I still liable for it?

All help appreciated.

Cheers
 
If your parents are buying the house in their name, then this would be classed as their second home.

Then the 'rent' you pay them would be income to them, yes. They can only offset the interest part of the mortgage payments against that income (plus some other expenses) so they will have a residual taxable income to declare via self assessment.

Capital Gains Tax would only apply to your parents if they subsequently sold the house for a profit - as it is classed as a second home.

Inheritance Tax - you would be liable to pay this on the value of their estate they pass to you on their death - this would include this house and their current house. You do get an IHT free allowance of £325,000 (per parent sometimes) and then pay IHT on anything over that.

But if they gift you the house then live for another 7 years, no IHT would be due on their death on this property - only what they leave you at time of death.
 
Not wanting to pry, but how big a factor is your credit history? Is it because it's not very extensive or did you default?
 
Swifty55 said:
I've tried getting on the property ladder but due to my credit score I am unseccsful in securing a mortgage, albeit I have a 10-15% deposit.

I find renting pointless since you pay all that money and get nothing for it.
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Wrong, you get somewhere to live with a roof over your head. Somethings billions of people on this planet dream of. Housing is the most important human necessity after oxygen, water and food.
 
mollymoo said:
Can you gift a house whilst there is still a mortgage to pay, it isn't really theirs to give is it ?
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That depends on the mortgage provider I would assume, if they would allow a change of ownership while the parents still retain the responsibility of the mortgage payments.

Effectively the parents would just become the guarantors, and the provider would still retain the ability to repossess the property on any payment default.
 
Did you not put your folks down as garauntors when applying for the mortgage?

How many mortgage applications have you done? Have you applied for any other credit recently?

When someone/a company does a credit search on you, the credit score will go down slightly, then another, and another, and another etc etc etc. Thats why I ask.
 
norm said:
Not wanting to pry, but how big a factor is your credit history? Is it because it's not very extensive or did you default?
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Defaulted on a personal loan years ago.

Threepwood said:
Could your parents not be guarantors on a mortgage in your name?
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Yes but not at the rate they got it.

D.P. said:
Wrong, you get somewhere to live with a roof over your head. Somethings billions of people on this planet dream of. Housing is the most important human necessity after oxygen, water and food.
Click to expand...

I agree...
 
D.P. said:
Wrong, you get somewhere to live with a roof over your head. Somethings billions of people on this planet dream of. Housing is the most important human necessity after oxygen, water and food.
Click to expand...

By your somewhat tactless reasoning, the OP is right to try and secure a home of his own as renting provides no long term security, housing being an important human necessity after all.
 
rhysduck said:
Did you not put your folks down as garauntors when applying for the mortgage?

How many mortgage applications have you done? Have you applied for any other credit recently?

When someone/a company does a credit search on you, the credit score will go down slightly, then another, and another, and another etc etc etc. Thats why I ask.
Click to expand...

I was turned down by my bank, who knows and sees my earnings/expenditures. That would have already affected my second chance tbh.
 
Guarantor or deal with capital gains / inheritance tax mess and costs.

Use a decent broker and you will likely find people willing to deal with you with them as guarantor.
 
A mortgage credit score doesn't negatively affect your credit rating the same way as a loan credit score does. It has a small affect, but not enough to make a difference. Some lenders are stricter then others so it's always best to shop around.

1) Why not just have your parents as guarantors?

2) If they are renting the house to you they would need to take a buy to let mortgage, which generally speaking is a higher rate of interest. They can then offset the rental income against the mortgage payments to keep the mortgage company happy and keep income tax to a minimum.
 
As a second home, the estate would need to pay CGT before the house is transferred to you. Then there would also be inheritance tax to pay if the estate is over £325k (this is person, so can be up to £650k from both parents).

Only the interest on the mortgage would be deductable from the income from renting to you. Anything over this and you're probably throwing 40% of the rent away.

EDIT: Actually, from what I can find it appears there is no CGT on death, and if it is your primary residence then you wouldn't have to worry about CGT either. If there is any risk of going over the IHT threshold though the 40% tax rate is quite high. I would find out what interest rate a BTL mortgage for your parents would be, and taking into account income tax paid on rent whether this would work out more expensive then them being a guarantor for you even if the rate is slightly higher.
 
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