12:45 PM, 7th May 2014, About 10 years ago 7
For 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.
Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's