Q I was just doing some research regarding buying a property to rent and was hoping I could pick your brains.
I live and work in London and cannot afford to buy a property there on my own. My dad and I were therefore thinking about buying a property back in my home town of Loughborough to rent out to students. Can the mortgage be in our joint names or would it have to be in my dad’s name only?
I also have a help-to-buy Isa, which in all honestly hasn’t got much in at the moment but I’m increasing my monthly payments to the maximum. Again, not sure I will be able to use this for the purchase. Any advice you have would be greatly appreciated.
A The point of having a help-to-buy Isa is to claim the 25% government bonus (up to a maximum of £3,000) when you use your savings – together with a mortgage – to buy a home as a first-time buyer. You won’t qualify for the government bonus if the property you are buying is a rental property in which you do not plan to live. But you are free to withdraw any money you have paid into the Isa and spend it on whatever you like.
If you want to get on the property ladder but also enjoy the perks of being a first-time buyer – such as no stamp duty land tax (SDLT) on the first £300,000 of a property costing up to £500,000 or access to partially interest-free government loans with the help-to-buy scheme as well as the 25% bonus with a help-to-buy Isa – I’m not sure that buying a student rental in Loughborough is the way to go.
You could get a joint mortgage with your dad but it would have to be a buy-to-let mortgage which would require a cash deposit on any property of 25% or more. And it would be advisable to use an independent mortgage adviser with specialist knowledge of student lets as not all buy-to-let lenders are willing to lend where student tenants are involved. If you bought somewhere big enough to house five or more unrelated student tenants, you would also have to pay for a house in multiple occupation licence from the local authority. The other thing to consider is the fact that, assuming your dad owns his own home, you would have to pay the higher rate of SDLT and you wouldn’t qualify for first-time buyer SDLT relief.
Perhaps you should look into the help-to-buy scheme which, in London, means you can get an equity loan of 40% of the price of a property costing up to a maximum of £600,000. From April 2021, this scheme will be open only to first-time buyers looking to buy a new-build property. An alternative would be to look into shared ownership to make property purchase affordable. With either of these options you would get the benefit of SDLT relief and you would qualify for the government bonus with your help-to-buy Isa (which closed to new customers at midnight on 30 November 2019).