Buying to rent to a disabled person

This page has technical information about buying or building a property that you let to a relative - usually a son or daughter.

Buy to rent is where a parent, or other close relative, buys (or builds) a property and then lets it out to their son or daughter or relation. The parents fund the acquisition commonly repaying the mortgage from the rent charged.

This property may be any ordinary house, flat or bungalow – adapted if necessary. It can also be an annexe to the parent's home (possibly converted) or a small bungalow built in the garden of the relative's own home.

How to access

The housing may be under the direct control of the relative, or leased to a third party housing provider for them to manage on the family’s behalf. If a care or support package is required this element will depend on the local authority or health authority agreeing to the funding.

Pros and cons

Pros:

• Any property that is affordable is potentially available – therefore an extensive choice of type, location, size and facilities;
• It can be an investment for parent (or other relative). In the long term the property could be passed on to the son/ daughter possibly free of debt. This in turn can provide financial security and the ability to move and choose another dwelling if required in the future;
• The family is in control of the housing solution;
• The property can be shared with others and the relatives can decide who to let it to (unless they opt for the third party housing provider option); and
• It can offer long-term, permanent housing.

 

Cons:

• Not all families may be able to take on arranging a buy to let mortgage and the other tasks involved;
• Similarly, not all may be in a financial position to raise the mortgage, provide an initial deposit and fund the legal, valuation survey and other set up fees;
• The usual risk of fall in value of property;
• Where repaying the mortgage depends on the son/ daughter (or other relative) getting Housing Benefit (HB) to cover the rent there may be difficulties getting HB. Alternatively the rent that is payable by HB may be insufficient to meet the mortgage repayments in full; and
• All the legal and practical responsibilities of being a landlord have to be met including managing and maintaining the property (unless the third party housing provider option is chosen)

How the money works

Commercial buy to let mortgages have become widely available and are a common source of loan finance for the purchase. Mortgages for conversion or building projects are also available. Parents will usually have to find a small deposit. According to the family's personal circumstances, it may be possible to acquire a second property without borrowing or re-mortgaging their own home. Normally the mortgage is repaid via a rental charge made to the relative. Most people with a significant learning disability will be eligible for housing benefit and this is used to repay the loan the parents have taken out.

There are three financial issues:

• The parents (or other relatives) will be treated as private sector landlords and the rent that the housing benefit will pay is determined by a maximum local housing allowance set for the area and type of property. This may, or may not, cover the actual loan repayments, repair and maintenance costs. In some cases, relatives take the view that even if there is a shortfall the benefits of getting good, suitable, secure housing outweigh the disadvantages, and/or that in the long term the property is likely to appreciate in value;
• An income from the property, particularly if it is shared with others who also pay rent, will possibly affect the family's tax bill – although the maintenance and most other costs of the property can be offset against the income; and
• Housing Benefit departments may refuse to pay benefit where the landlord is a 'close relative' – see below.

Other issues

A big issue with this option is the confusion and sometimes inconsistent application of Housing Benefit regulations when a close relative lets to another close relative. The key Statutory Instrument (SI) setting out the regulations is SI 3257. Broadly, the SI seeks to discourage renting between close relatives, fearing that arrangements will be set up to exploit the housing benefit system.

 

However, at the end of this SI it is explained that renting between close relatives is permissible provided:

• The property rented out is a separate, self-contained property. A close relative cannot for example get HB to pay the rent on a room in their own home;
• The letting must be on a commercial basis. The relatives must, in all respects, act like any other private landlord. This means for example, granting a proper tenancy, charging a commercial rent, being prepared to agree they would let to someone other than a relative if necessary (i.e. acting commercially). It should not be the case that the arrangement has been set up primarily to provide housing for the specific relative;
• Benefit decision makers are persuaded that the arrangements are not being set up purely in order to take advantage of the housing benefit system – a 'contrivance'. In practice, it is lack of commerciality that is most commonly used to refuse Housing Benefit. There have been a number of Social Security Commissioner decisions seeking to clarify what is, and is not, acceptable. See for example, Commissioners Case CH/0296/2004 and CH/0215/2004, where relatives take the initiative to provide housing.

 

Leasing to a third party housing provider

A family can lease any property, acquired by any of the options above, to a third party housing provider (usually a registered provider, or Housing Association registered with the Homes and Communities Agency, but not essentially) who in turn lets to the relative. Lease periods usually start at 3 years and may go up to 25 years or more.

The family might say that the rent for the property payable to them would be £100 per week. This would be called the lease fee.  The Housing Provider agrees to pay this amount to the property owner. They may also agree to carry out housing management and day-to-day repairs and provide furniture, which might cost £50 a week. The tenant signs a tenancy agreement with the Housing Provider with a rent set at £150 per week. The tenant pays the rent to the Housing Provider, claiming Housing Benefit if eligible. The Housing Provider then keeps the £50 required for the direct services they provide, and passes the remaining £100 to the owner of the property to settle the lease fee. 

 

Pros

This option is commonly used when one, some or all of the following is an issue:

• The property rent that needs to be charged by the family exceeds Local Housing Allowance and the relative can’t afford to top up the difference;
• Because the tenancy agreement is between a Registered Provider or Not for Profit organisation, the Housing Benefit claim can be assessed by Housing Benefit as either exempt accommodation or as an excluded tenancy;
• The insecurity associated with the standard 6 month or 12 month assured shorthold agreement offered by the Private Landlord is a an unmanageable risk to the tenant (the tenancy agreement can be granted for the life of the head lease agreement, subject to any termination clauses included in that agreement);
• The property has been bought/is owned by a family member and they don’t want to act as their relative's direct landlord or they aren’t able to take the risk of Housing Benefit being refused. Because the tenancy agreement is between the Housing Provider and the tenant, the landlord is not the family member, therefore the tests of commerciality and contrivance should not be applied

 

Cons

It can be hard to find a landlord or a housing provider willing to get involved. It often needs a certain amount of negotiation in terms of explaining the benefits to the landlord (guaranteed rental income, no direct housing management) and agreeing mutually acceptable lease terms. This problem has been overcome in areas where Adult Social Care and Housing Departments manage the market in some way, evidencing demand, recruiting good quality landlords and housing providers – generally supporting the process.

Alternatively Golden Lane Housing offer a private sector lease management service:

http://bit.ly/23Ybd7F

 

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This webpage was last updated in April 2016