Q After a recent separation, my two young children and I have moved back in with my parents whilst I have been selling the property I jointly owned with my ex-partner. We have been living in my parents’ home for about a year and it has been working really well. They are able to help with childcare and they enjoy having me and the children around. The house is large enough for us all and still offers personal space when needed.
My former home is now sold, and as a single mum I think I will struggle to buy a property in the same area as my parents as it is quite affluent and prices are rising rapidly. I will end up with about £35,000 from the sale of my property and I want to make the best of it. My parents and I have come up with a (potentially crazy) idea of me staying long term and mortgaging a small amount to buy a share of their property at market value.
Would this be possible? They still have a small amount of mortgage on the property and the idea being that they could pay off the remaining amount and some of their debt which would enable my mum to retire (dad is already retired) and help with the childcare (saving me nursery fees).
Additionally would there be scope for me to then use my £35,000 from the sale of my property as a deposit on a buy-to-let mortgage for another small property which I could rent out and let itself “tick over” so to speak as means of investment. But is doing all that a bit too good to be true?
A It is all a bit too good to be true, I’m afraid. To buy a share in your parents’ house, you either need to pay them cash for whatever percentage share you agree or get their lender’s agreement to be put on their existing mortgage and also get a solicitor to arrange what’s called a “transfer of equity” to ensure that you are listed as a joint owner at the Land Registry. If the transfer of equity was worth more than £40,000 there would also be stamp duty land tax (SDLT) to pay. It isn’t possible to take out a mortgage on your parents’ property on your own and separate from their mortgage.
Being added to your parents’ mortgage – if their lender permits this – doesn’t get the mortgage paid off, however. So for your mother to retire, you might have to agree to be responsible for making the monthly mortgage repayments instead of her. Alternatively, given that you are keen to invest your £35,000 in property, you could use it to buy your share of your parents’ house. However, you would need to give serious thought as to how you would get your hands on your cash if you were to move out of your parents’ home.
Using your £35,000 to invest in a buy-to-let property could be an option if you think you could buy somewhere suitable for £140,000 or less as the most you could borrow on a buy-to-let mortgage would be £105,000 and assuming that you could charge rent of at least 125% of your mortgage payments (145% if you are a higher or additional-rate taxpayer). It also assumes that you have spare cash to cover the extra expenses involved in fulfilling your responsibilities as a full-time landlord.