Thinking about Choosing a Buy-To-Let Mortgage for Your Child? Here are the Complexities Behind It
Parents will do everything they can to make their kids’ lives easier. That’s why some choose a buy-to-let mortgage, which is buying a property to be used by your children or relatives. While it sounds the best decision to make, there are complexities behind it that you need to understand. Sure, it does look at a lot like the typical mortgage in hindsight, but there are key differences.
Investing in a property only to rent it out to your relatives poses a major problem for lenders and the owner alike. If this is your purpose, you won’t be able to secure a standard buy-to-let housing loan. For one, you probably won’t charge your loved one the full market price, which means it would become a problem to the borrower, more so if he/she only gave a small deposit. In turn, this will be problematic as well for the lender.
The Financial Conduct Association doesn’t usually regulate buy-to-let mortgages, but the family buy-to-let type is treated as an application as that of a typical residential loan. This is what is known as the regulated buy-to-let mortgage. There’s a high chance that you may need to shell out a bigger down payment and sometimes, they will insist on a repayment basis instead of the interest-only scheme.
Other lenders will ask you to prove that your income is enough to pay the loan because you could rent the place out for less than the market value. Because this is a major decision, it pays to talk to an expert to further know about its intricacies.
Purchasing a property to have a loved one rent it out is not a walk in the park, as you might know by now. But Mansfield Building Society launched last year a program that will make this easier and more affordable. The deal will let the borrower charge the tenant just the same amount to cover the mortgage payments, which is a better option than the usual 125 percent to 145 percent slapped by others.
For Your Child
Your child may be off to college and what better way to earn money than to invest in a property near the university. The place may perhaps be able to accommodate other students that may bring in a neat income even when your kid finally finishes schooling.
While stories of good yield are enough to convince you to invest, understand that it’s not as easy as it looks. Sure, you will have sufficient earnings to pay for the mortgage and even more but there are obligations.
First, there is a high chance that students will move out of your property regularly than a professional. With this, there will be moments when you will have unoccupied spaces, which means you will have to shell out cash in other months.
Then, you need to invest in beds and other necessary furniture before you begin renting these out. Although it is not always the case, repairs might be needed more frequently than when you have professional tenants.
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