Buy to Let perceptions contradicted

Buy to Let perceptions contradicted

12:45 PM, 7th May 2014, About 10 years ago 7

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PerceptionFor so many years I have heard people say (including many financial advisers) that life insurance to cover buy to let mortgages is not necessary because “the rent pays the mortgage and that’s how it can continue if the borrower dies and the surviving partner takes over the property(ies)”.

Is that what most people think still?

As an experienced Adviser, Buy to Let broker and financial planner let me make this absolutely clear. If a property is owned in a sole name, the statement above is wrong!

If you own one or more property in your sole name only and you died during the term of the buy to let mortgage, at that time the mortgage contract dies with you and the lender wants their money back.

How do I know this and why do I contradict the opening paragraph and commonly held assumption above?

Because, as due diligence for our many Buy to Let Clients, we carried out research with a number of the leading BTL mortgage lenders and asked that exact question and they all answered in the same factual way; in the first instance they offer the deceased’s estate some time to attend to the financial matters (their grace periods range from 6 weeks to 18 months depending on the lender) and then … they start mortgage recovery actions.

Allow me to clarify, if a sole owner / borrower dies, the surviving partner (and family) do not automatically take over ownership of the mortgage and this could result in the family having to find the repayable mortgage funds (which could run in to hundreds of thousands if not millions of pounds) from other assets, investments or sale of other properties.

The usual detrimental consequence therefore is that by selling properties to repay the mortgages that the remaining family loses ongoing rental income (their only income?), loss of future capital growth and an extremely stressful time having to deal with lenders and legal representatives …. when all of this could have been avoided! Is that what they originally planned for, thought would happen, or want?

Why is there no automatic transfer? The survivor may not be mortgage-worthy, there may not be other properties or investments accessible to pay off the mortgages, depending on the lender they may not allow a transfer of ownership, and all this leads to the surviving family ending up seriously financially disadvantaged.

There are however a few solutions to the above issues, including property ownership restructuring now, refinancing existing mortgages into joint names, or (the most straightforward, easy to implement and usually best value) is to instigate the most appropriate life insurance arrangement in Trust.

This does not mean a quick purchase online or going to the local supermarket who sells cheap policies, but a properly structured, appropriate and flexible insurance product which is set up in Trust from day one.

To do this properly (and by the way, the policies we provide are also best value and not ‘expensive’) I strongly recommend that the specifics are discussed with a professional, qualified and authorised financial adviser.

We have arranged many such policies for our Clients over the years and as BTL brokers and landlords ourselves too, we know the best way to do this, the reasons why it should be done, the most effective way of implementing the Trusts and we also liase with the Trustees (entirely at our own expense) to ensure that our Client’s policies and estate will be properly managed and looked after as well.

All it takes is a call to establish if there is a need, then, if appropriate, we can review your existing arrangements, arrange best value options for consideration (if required) and of course provide the necessary implementation and Trusts service, too.

If you are a couple, a family, a business partnership and you have solely-owned / sole-borrower properties, and you want the survivor to have continued income, continued property ownership and also benefit from future capital growth, please contact me and I would be pleased to assist.

Contact Howard Reuben

Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's

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Mark Alexander - Founder of Property118

14:23 PM, 7th May 2014, About 10 years ago

Great article Howard.

I agree with everything you have said, which is why I created a life insurance calculator for landlords which is embedded into an article I wrote some time ago - see >>>

Howard Reuben Cert CII (MP) CeRER

16:43 PM, 7th May 2014, About 10 years ago

Reply to the comment left by "Mark Alexander" at "07/05/2014 - 14:23":

Thanks Mark

The article has not fallen on deaf ears as we are now in discussion with concerned BTL'ers who are seeking to put things right.

As often is the case, it's not that anyone has set out to do it wrong, just that many people have simply not had the right and comprehensive 'holistic' advice in the past when implementing mortgages.

I hope we can help many more people ensure that their succession planning is also watertight and that their loved ones inherit assets and wealth, and not stress and legal estate finalisation turbulence!

By the way, for clarity, even if people have the 'right ' policies in place, but do not yet have them in Trust, that is something we help with too and we don't charge a fee for that service either.


Mark Alexander - Founder of Property118

16:46 PM, 7th May 2014, About 10 years ago

Reply to the comment left by "Howard Reuben" at "07/05/2014 - 16:43":

You may wish to mention the relevance of writing policies into trust in this thread too.

Howard Reuben Cert CII (MP) CeRER

17:36 PM, 7th May 2014, About 10 years ago


Specifically, the article above refers to life insurance policies as a strategy to ensure debt repayment, and the consequential positive benefits of having them written in to Trust.

There are however other types of Trusts (property trusts, IHT trusts, discretionary, flexible, bare and absolute - to name but a few) but I am referring specifically to life insurance Trusts planning.

Why place a policy in to Trust? Usually, the fundamental benefits can be summarised as follows;

"right people, right money, right time"

Why wouldn't the right people get all of the proceeds straight away anyway? Well, as one example, what if there was a claim against the estate? If that was to happen, an estate is frozen until the court decides that probate can be granted. If a claim is proven then the inherited funds could be depleted. And this all takes time too of course.

In addition, if a policy is paid out directly to the deceased's estate, these extra monies get added to the estate value for IHT purposes too, so instead of the policy doing what the policyholder (and survivors) thought it was going to do, the payout could be reduced by as much as 40% as IHT is taken from the taxable estate.

So, on to the H D Consultants' Trusts and Estate Planning Service - to ensure that the intended beneficiaries (right people) receive all of the payout (right money) without any delay (right time) we can arrange and implement the policy Trust, providing guidance and support to PolicyOwners and Trustees, too.

I hope that further clarifies the serious reasons behind the article above, and if any specific questions need answering, or plans to be reviewed, or urgent arrangements to be put in place, I welcome your questions and comments either via the enquiry form or my member profile.


Sustainer -

18:19 PM, 10th May 2014, About 10 years ago

This is really good advice, especially as most lenders' forbearance period on BTL mortgages is far less/non-existent than for residential loans. Certain lenders with low capital ratios are likely to begin repossession immediately that mortgage payments stop on BTL.

Steve Gracey

14:26 PM, 17th October 2014, About 9 years ago

I don't understand why the banks would do this. It doesn't seem to make good business sense. If the mortgage has always been paid promptly, if the LTV is reasonable, and if the rental income easily covers the mortgage why would they just not let things continue rather than go through all the hassle and expense to get rid of a good customer..

Mark Alexander - Founder of Property118

16:39 PM, 17th October 2014, About 9 years ago

Reply to the comment left by "Steve Gracey" at "17/10/2014 - 14:26":

I'm not sure I follow your logic here Steve. Just because a loan has been well maintained whilst a borrower was alive does not mean that it will be well maintained after that borrower has died.

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