Do banks require sublet AST for loans?

by Readers Question

11:27 AM, 7th December 2014
About 4 years ago

Do banks require sublet AST for loans?

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Do banks require sublet AST for loans?

I own, outright, a flat in Suffolk. I asked LLoyds Bank for a 70% remortgage (approx £34,500).  Do banks require sublet AST for loans

All seems to be going well, although long winded.

A few months ago I made a three year guaranteed rental agreement with Genesis, a housing association. I assume they sublet for social housing or similar.

Lloyds bank are not only requesting a copy of the Genesis rental agreement, but they are also requesting the AST of the present occupier (who has taken the property from Genesis). Genesis will not send me the AST, or the Letting agent who looks after the propertry cannot get it. I assume this would be normal, Genesis have no interest in me seeing who is in there or what rent he is paying.

Can anyone suggest a way forward? Would all lenders (not just LLoys Bank) ask the same, if so how do I get the information. Are Genesis legally obliged to give it to me (I doubt it).

Should I go to another lender?

I am a U.K. self employed resident.

Any suggestions or help would be appreciated, thank you.

Christopher Farrell



Comments

Mark Alexander

11:35 AM, 7th December 2014
About 4 years ago

Hi Christopher

Very few lenders or insurance companies like residential leases which allow for subletting to unknown tenants. You may well struggle to find an alternative lender, especially as the loan is relatively small. I certainly can't think of a mainstream BTL lender that would do this deal.

On that basis, I really think your best bet is to try to get Lloyds to reconsider their request. Show them the correspondence between you and the Housing Association and ask them to help you to solve the problem. I think you will find this approach far more effective than arguing with them.

If you get nowhere I think it could well be a case of approaching their direct competitors, e.g. RBS, Nat West, Barclays, TSB.

If you required loan was significantly larger I'd suggest employing a commercial finance broker to do the deal for you on the basis that they tend to have contacts with "Hunter" managers that are generally not accessible directly by the public. However, for a deal of this size, it is unlikely to be commercially viable for you or a decent commercial finance broker to get involved.

More on "Hunter" lenders here >>> http://www.property118.com/which-commercial-lenders-are-hungry-for-business/37392/
.

Christopher Farrell

23:24 PM, 7th December 2014
About 4 years ago

Hi Mark,

Thank you for your answer.

I find it most frustrating. I returned to U.K. from Spain, I bought outright a flat for GBP47500 as I could not get a mortgage to buy a higher value property using the above cash as a deposit, expecting to refinance now (18 months later).

Having had from the start a problem tenant, I thought a guaranteed rent for three years from Genesis would be better, not knowing of course that this may well cause me problems to refinance.

Surely I am not the only one with a guaranteed rent who has had the same problem.

I would assume from the bank's point of view, a guaranteed rent would be better for them.

I am frustrated because having only recently started on my property journey, it now appears that I may have to wait almost 3 years to re finance, when the rental agreement with Genesis ends, or just sell and be done with it and rebuy using the funds as a depost....

....if I can get a mortgage, and then never be able to take a guaranteed rental for peace of mind, for fear of running foul of the Bank. A rather strange situation to me.

I have seen a number of Letting agents offer guaranteed rent. Does everyone have this problem then or is it just housing associations similar to Genesis.

I really do wish this had been discussed with me by the letting agents before I signed. They should have known.

My property adventure has basically now been put on hold for three years (unless I just sell as stated). There just seems to be so many unforseen barriers to this, I just wonder how anyone gets started. This has been going on for many months with Lloyds, now just to be nipped in the bud in the final stages...

Mark Alexander

23:28 PM, 7th December 2014
About 4 years ago

Reply to the comment left by "Christopher Farrell" at "07/12/2014 - 23:24":

Hi Christopher

I feel your pain and wish you had posted here for advice before entering into the a three year lease which allows subletting.

The issue for mortgage lenders is that it is very risky for them in terms of insurance. They could sublet to an arsonist who has just been released from prison and there is nothing that you or they could do about it. Furthermore, if you default, they cannot sell the property in the open market with vacant possession which means they would have to take a big hit on the price or tough it out for the remainder of the contract.
.

Christopher Farrell

0:03 AM, 8th December 2014
About 4 years ago

Hi Mark,

Thanks for explaining the risks to mortgage lenders, hence their decision taken. With hindsight it seems logical.

I will phone Genesis tomorrow and see what I can do, if anything, to sort this out, or see what sale options are for the property and start again. Not being able to refinance and gear funds does take the shine off property investment, to a degree.

As always, I do appreciate your help and any comments from others who may have experiences (and resolved??) similar issues would be appreciated.

philip allen

12:34 PM, 13th December 2014
About 4 years ago

Christopher,
Sadly, you chose the one housing association that I would run a mile from. This, of course, can only come from experience and, as Mark has said, it's a pity you didn't post here first. One of the main objections for lenders is that they believe that the association now has security of tenure for three years. In other words, should they need to repossess the property, they can't evict the tenant in the accepted manner. I mainly use Shepherds Bush Housing Association who have their tenants on standard ASTs and would evict in the usual way, i.e. two months notice. They are certainly the most pro-active and helpful of the London associations.
You could try speaking to Genesis and ask them to change your contract from the thirty six months to six months while you are negotiating your remortgage. Other associations will do this for you so you can but try. Good luck and do let us know what their response is.

Neil Robb

14:20 PM, 14th December 2014
About 4 years ago

Hi Christopher

You are fully entitled to any paperwork in connection to your agreement between Genesis and yourself not sure about there agreement with the tenant though however a lot of these agreements give you a say to who they are allowed to rent the property to.

I would sent a Subject Access Request (SAR) request to Genesis stating as they refused to give you a copy of the required paperwork you requested. You are now requesting under the Data protection act. Subject Access Request and require a copy of there agreement on the property and any other related paper work including the current tenancy agreement. if they fail to comply with this you will put in a full compliant to the Information Commissioner office's you can find out how to do this on the net.

I would say they will quickly and promptly deal with your request. Each breach can result in £5000.00 fine.

On the other matter on recent mortgages and re mortgages they have asked me to provide a copy of the tenancy agreement.

Like many things a lot of these request are annoying but if you want the mortgage then it is what we need to do.

If you can not get your mortgage but need your money another investor may buy your property from you.


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