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Second Home For Daughter: Charge Rent Or Shared Ownership?

By: Emma Eilbeck BA (hons) - Updated: 28 Sep 2012 | comments*Discuss
 
Shared Ownership Rent Buy-to-let

Q.

I am thinking of buying a second home to let my daughter live in. Am I better off to let her pay me rent or buy it as shared ownership? So she is basically paying a smaller mortgage.

(D.H, 27 April 2009)

A.

Now is a great time to buy a house, whether it is for yourself or for your daughter. Interest rates are low and there are some very competitive fixed mortgage rates on the market.

You have a number of options with your current situation. If you plan to put the mortgage in your name and rent it out to your daughter you may have to consider getting a buy-to-let mortgage. Buy-to-let mortgages are generally a lot harder to get than normal mortgages and you will need to put down around a 15% deposit and prove you can make the mortgage repayments. Some lenders may allow you to take out a normal residential mortgage if you intend to move a family member into your house but you will need to OK it with them first.

If you intend to take out a mortgage in your daughter’s name but act as a guarantor you will also need to put down at least a 10% deposit. If you can do this then this would be the best option as you will own the house outright which means you will benefit from any increase in its value.

Shared ownership mortgages are normally only granted to first-time buyers or those that struggle to get on the housing ladder. You will find it almost impossible to get a shared ownership mortgage in your name if you are a second time buyer. Your daughter will be able to get a shared ownership mortgage as long as she meets all the criteria, but there will come a day when she will need to buy the other party out, normally the housing association.

If you do not have at least a 10% deposit the best way of getting your daughter on the housing ladder is through shared ownership, if however you have the means to buy a property yourself and then sell/rent it to your daughter this may mean higher mortgage payments but you will also own a greater share of the property.

Shared ownership is a great way for first-time buyers to get on the housing ladder, but if you can put the mortgage in your daughter’s name and act as a guarantor this will most likely be more economical in the long-run. If your daughter can not afford to rent from you though shared ownership will help her achieve her dream of owning a home at a lower cost.

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