Advice for parents: Buying a student flat
Ivan Ralph from McEwan Fraser Legal has advice on buying a flat for your child when they are at university.
Funding children through university is an expensive business. But instead of forking out a small fortune in rental payments when they leave home to study you could save a fortune and actually make money as a buy-to-let landlord, but you need to act fast and buy before 1st April.
Why should I purchase a property now?
Throughout Scotland we anticipate a mini sales boom as people buy and sell properties ahead of the three per cent increase in Land and Buildings Transaction Tax (LBTT) on additional properties which kicks in after 1st April. These extra payments are significant. For example, the tax you pay at present on a £200,000 property is just £1100, but after the new tax is brought in the bill for the same property shoots up to £7000.
What are the advantages?
Saving cash is the obvious one. The Scottish Fiscal Commission, the official watchdog of the Scottish government's tax and spending plans, expects the supplement on LBTT will affect between 8500 and 12,500 transactions each year, and could generate between £19m and £27m income.
The move, which brings Scotland in line with the rest of the UK, means that LBTT will be paid on additional homes valued below £145,000 for the first time, with all extra properties over £40,000 subject to the levy. So, a lot of homes are involved and many of these come into the price range which would cover the cost of student accommodation.
The bank of mum and dad often pick up the tab for their child's accommodation, so it’s a sensible alternative instead of paying out hundreds of pounds every month paying for your child's rent. And when the time comes to sell you know that the property, in a student area or university town, will retain its popularity and maintain a good re-sale value.
What’s the market like at present?
Solicitor estate agents have reported one of the busiest Christmas and New Year periods as buyers and sellers act before April. Buyers don’t want to spend more than they have to and sellers are worried the potential price of their property might be materially reduced.
What about the finance?
Most buy-to-let lenders have no problem lending on student lets and, as such, landlords can access many best-buy products. However, once you throw a family member into the mix, your options are significantly reduced as the situation becomes knows as a regulated buy-to-let. But, as with every potential purchase of property you must seek proper professional advice before you make any decisions.
Register as a landlord with your council. Most landlords must do this. You will need to register even if a letting agent takes care of the property and deals with the tenants. There are serious consequences if you don’t register.
If there will be three or more tenants who are not members of the same family (or one or other of two families) the property becomes a House in Multiple Occupation (HMO). You need to get an electronic copy of the Tenant Information Pack and get a tenancy agreement. What kind of agreement you choose affects both your and your tenant’s rights. When renting out your property, you will have the choice between offering it as an assured tenancy or a short assured tenancy.
Ivan Ralph is a senior partner at McEwan Fraser Legal