getting a foot on the property ladder

I would be grateful for comments as to the potential pitfalls of an idea my sister has had to help us both onto the property ladder.

I am single and still living with parents at the age of 30 (can't buy a garden shed around here on my single income, although am in professional, reasonably secure and reasonably well paid employment).

My sister and her husband live in an army quarter. Her husband has no plans to leave the army, and they expect to continue living in quarters.

I am desperate to have my own space but reluctant to rent, as it would make it difficult for me to continue saving for the ever increasing deposit I would need to buy a place on my own, and I can't get over the feeling that renting is dead money.

My sister and her husband would like to get a foot on the property ladder to help them to buy something when he does eventually leave the army.

My sister's idea is this. The three of us get a mortgage together to enable us to buy a reasonable property - probably a two or three bed house. We view it as a buy to let (they would have no intention of ever living there), but with me as the "tennant", effectively paying the full amount of the mortgage each month.

On the surface, this seems like a good idea, as it means although I am paying "rent" each month, I have a 1/3 interest in the property. Depending on the housing market, we could either continue this arrangement long term, or if my circumstances change, get a new tennant, or sell up and split any proceeds.

My sister is very enthusiastic, but being the sensible, cautious one, I can't help thinking this must be potentially fraught with difficulties.

Any comments/advice would be much appreciated.

Helen.

Reply to
Helen
Loading thread data ...

If it was me, paying the full amount of the mortgage per month, I would expect slightly more than 1/3 of the stake in the property! They wouldn't be paying anything whilst you would be paying all of the mortgage for the same share meaning their profits would be worth more from any future sale as you would have spent thousands on the mortgage in the meantime. However, as you have to live somewhere you need to pay rent, so it seems like an alright thing to do as long as you don't fall out with each other. If you go down that route make sure that you have the legal aspect fully documented - ie that you are paying the mortgage and you have X share in the property. What if they want to sell but you don't in the future? They have a 2/3 say in what happens. I know things may be rosy now, but you have to build in potential disagreements before you commit to a venture such as this. Good luck.

Reply to
nospam

Not a bad idea, probably your mortgage would be less than any rent you might pay and it helps them keep in track with the property market.

I think, as 'nospam' said, that the main thing is to consider as many eventualities as possible and agree to them in a legal doc beforehand. For example, suppose your sister and her huband split up and one of them wants to sell? Suppose they both want to sell, or you do? What would happen in those circumstances? Could they force a sale? Should the ones not wanting to sell have first option? How would you decide a fair price? As money is tight, suppose you want to get a lodger? What would the rules be for that, who would get the income? You, them, or share and if so what proportion? None of these things (and no doubt others you can think of) need be a problem as long as you have agreed what to do upfront.

I also agree with 'nospam' that if it was me I might also feel that more than 1/3 of the interest in the property would be fairer...dont forget, whilst they might argue that they could just rent it and so get the same income, with you they get a known good tenant who wont messa the place up, with no blank periods between tenancies, no worry and no hassle for them. That has to be worth a *considerable* amount, most agents, from what I read here, will charge 20 or 25% of the rent for managing a BTL property and you'd still have blank periods . I suggest that 50% equity might be fairer in recognition of that (as long as you put perhaps 50% of the deposit down to start with)

Tw

Reply to
Tumbleweed

It's not clear to me what this means exactly. What, apart from any deposit that you're sharing between the three of you, are your sister and hubby contributing. Think of it like this. By the same logic, I, as a fourth person might be content to lend a quarter of the deposit, but would you really want me to have a quarter share interest in it?

If you're all expecting to own a third and share profits equally, then it's only reasonable that you share the costs equally.

I don't know whether lenders would take into account all three salaries in order to determine the mortgage offer amount. If they would't then presumably it would be better for sis. and hubby to apply for a mortgage (assuming their joint salaries were more than yours), since you'd get a bigger morgage and hence a bigger/pricier residence, with a bigger profit potential.

As others have said, whatever you do get all provisions and likely future scenarios fully catered for and agreed on in a legal document.

Rgds

Richard Buttrey Grappenhall, Cheshire, UK __________________________

Reply to
Richard Buttrey

I wonder how the CGT on sale works out ?

Search the uk.finance archive for opinions on house prices

You might want to consider a DIY version of this kind of arrangement discussed here

Personally I think it's one of the worse points in the house price cycle to be thinking of purchasing in southern England. See the graph at the bottom of the Nationwide Building Societies monthly review -

hth

Daytona

Reply to
Daytona

I haven't heard of that. 10%-15% for full management (excl. VAT)

Daytona

Reply to
Daytona

I stand corrected :-)

Tumbleweed

Reply to
Tumbleweed

Does anyone else think the long term trend line on that graph is being skewed upwards by the current bubble, and what looks like the bottom of the cycle in the 1970s?

It suggests that the long term trend line was crossed around 2001. If the extremes at the beginning and end of the graph were taken out, it would be more like 1998-99.

Reply to
Jonathan Bryce

I would have thought it fairer to split the two sides. You all buy the property, and have an equal share in the equity. You then draw up a legal agreement outlinging how it will be run, who is responsible for what, and particularly (as mentioned elsewhere) how you deal with one person wanting to sell.

The second point is you then rent it officially from yourselves, with a proper agreement. This would enable you to pay your rent, and get a fair share of the reward.

John

Reply to
John Bishop

That would make sense to me, I wanted to buy then (1998) didn't have the deposit (having just moved jobs and taken several months off partying).. so decided to be sensible and get a deposit togther, only to be priced out.

BTW 1999 was when my landlord stopped buying... from the few chats we have had about house prices and renting.. with about a 10% drop in rents locally in the past 2 years, he's glad he stopped buying then.. and its on his mind that he may have to sell a property in the future. I hate to think what a first time BTL here is thinking if they bought in the last 2-3 years :o)

Regards

Reply to
Mark Blewett

Rents were dropping in SW London a few years ago - I had no problem in negotiating a 10% decrease for a client. The agent also mentioned that BTL re-possessions were beginning to increase at about the same time.

Reply to
Doug Ramage

Many thanks to everyone for your replies, it's given me a lot of food for thought.

I wish it wasn't so complicated trying to get on the ladder, but I am one of the many people who has waited and waited, hoping prices would start to fall - how long can you keep hoping it's going to happen?

I'm in North Yorkshire, and there are very few properties available at the lower end of the market and they are being snapped up literally within hours of going on the market.

Thanks again, Helen.

Reply to
Helen

One's who bought 2-3 years ago are probably still doing OK. It's those that are buying now who have a problem

tim

Reply to
tim

Difficult to say, because the graph doesn't start at the beginning. The graph begins in 1970, but the claimed beginning is in 1957.

Reply to
Ronald Raygun

I grabbed the CML/DETR figures from 1956 for my own analysis here - since the were the longest running series. They no longer seem to publish them searching through Google. HBOS has them up to 2002

Interesting comparisons here

Daytona

Reply to
Daytona

That is a problem often faced by the first time buyer. But resist the temptation to "follow the herd" (of lemmings). It took my sister in law nearly 10 years before she could sell her flat for more than its original purchase price.

Reply to
Doug Ramage

The other thing to remember is that the motivation for buying is because it is cheaper than renting. At current prices it isn't

- so why buy? Working away from home I have one of each. I must say I enjoy the stress-free time in my rental flat where I have to bother with nothing and don't look forward to my returns back to 'my' house where I have loads of jobs that need doing.

tim

Reply to
tim

Maybe.. I'm not sure they are tho.

I'd like to ask a question to the BTL'ers out there (a real life question).. to see what they would do (its not a trick question.. I'm interested to see the responses)

A one bed basement flat in the block (1 of 8 flats) has just been sold for £165k, in a good location, freehold is held by a residence association.

You decided to buy it as a BTL.

Lets assume

- say a reasonable £55k (33%) deposit

- your in for the long term.. and plan for an average interest rate of

6%

- occupancy of 11 months a year

- its furnished, and you need to replace every 4 years.

What rent would you need / expect based on these figures?

Definately!

Regards

Reply to
Mark Blewett

I'm in SW london.. I've only been following rents/house prices closely the last few years, to get some understanding of whats happening.

Given the average wage here is about £30k (Evening Standard figures) and a reasonable FTB 1 bed flat is £160 (me looking at various sites/estate agants)... thats 5.3 times for a 100% mortgage.

It's not FTB who are buying but BTL.. and hence rents are dropping. At the moment its a renters market here.. I haven't had a rent increase in the last 6 years.

Regards

Reply to
Mark Blewett

OK, I'll bite.

I did? On reflection, I don't think I would have.

Since rates are already over 6% and expected to rise, is that not too optimistic an assumption?

Seems a bit quick, but never mind. How expensive is the furniture? If £4k will cover it, you obviously need to charge £1k more rent per year than unfurnished. Might it be better to let unfurnished?

What you expect, depends entirely on the market. What you need, in order not to make a loss, is the loan interest, say £110k at 7%, which is £7700, plus your £1000 for furniture, plus maybe £650 for insurance, maintenance, and repairs. Divide the total of £9350 by

11 months and that calls for a rent of £850 a month just to break even.

You also want to make a profit at least equal to the 5% interest you could get on your initial £62k outlay (£55k deposit, £4k furniture, £3k buying costs). That's another £282 a month.

For £1100 a month, I'd expect much more than a one-bed basement flat, even in a "good location". But maybe your area has different rules.

Reply to
Ronald Raygun

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.