Purchasing your parents’ property can often be a cost-effective way of housing your parents in their old age.
In some occasions, it can also be a cost-effective investment to buy your parents’ home if they’re struggling to make their payments or if you don’t want to bother with private rental or care home costs.
However, you can’t take out a residential mortgage for a property that you won’t be living in, nor will you be able to take out a ‘normal’ buy-to-let mortgage.
So what are my options?
You could take out what’s known as a regulated or consumer buy-to-let mortgage. This allows your mortgage to be looked at using the same affordability rules as a residential mortgage if the property is to be let to a relative, which is your spouse, civil partner, mother, father, brother, sister, child or grandparent.
As standard buy-to-let mortgages are used for business purposes and aren’t regulated by the Financial Conduct Authority (FCA), assessments can be made on rental income alone.
But with regulated/consumer buy-to-let mortgages, the main assessment driver is your affordability rather than rental income. They are also likely to want the mortgage to be a repayment mortgage rather than an interest-only.
Are there any criteria that I need to meet?
To be eligible for a regulated buy-to-let mortgage, you will need a minimum income of £25,000, excluding state pension and other benefits.
You will also need:
a deposit of 40%, all of which must come from you
you must be an owner-occupier rather than renting yourself
an ability to cover the buy-to-let mortgage out of earned income
rental coverage of 125% of the mortgage payment.
Buying a property for your parent is a very technical and specialist process, with only a handful of lenders accepting this sort of application.
For further information on buying a property for your parents, speak to one of our expert advisers and they will be able to take you through the next steps.