Letting to previous owners

by Readers Question

4 years ago

Letting to previous owners

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Letting to previous owners

I have recently signed for a property (completing next week), and the estate agent (with whom I have had a long business relationship) indicated that the previous owners would be interested in renting it back from me. Letting to previous owners

I must point out that the property was a repossessed house and therefore sold by the bank as a mortgagee in possession.

I do not have a mortgage on the house, but I have noted from other BTL mortgages which I hold on other houses that often there is a clause prohibiting renting back to a previous owner. Is there a reason why banks do not like this? If there is this would make me cautious about doing it, but on the other hand, renting back to the previous owners might save me money as the house is currently decorated to their tastes (and a very high standard, not perhaps to everyone’s tastes!!).

The thoughts of those more knowledgeable and experienced than me would be very much appreciated.

Many thanks

William



Comments

Mark Alexander

4 years ago

Hi William

Sale and Rent Back "SARB" is an activity which is highly regulated by the FCA. This is the reason why mortgage lenders refuse to lend where SARB is involved.

Given that you don't require a mortgage, lenders are the least of your worries but do be wary of the FCA.

As you purchased the property from mortgagees in possession as opposed to buying from the owner I'm not certain whether SARB regulation applies. You would need to seek professional advice on this.

If you search Google for "Sale and Rent Back" you will find a lot more information.
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Neil Patterson

4 years ago

If the property was repossessed for missed mortgage payments I would be concerned that the original owners would be able to pay your rent if circumstances have not changed.

William Wylie

4 years ago

Reply to the comment left by "Neil Patterson" at "08/10/2014 - 14:12":

Thank you for comments already made. That is my main concern, that if they couldn't pay the mortgage, how could they pay the rent, but apparently they were in such heavy negative equity (here in Northern Ireland our property prices are 50% below 2007 peak), that they just handed back the keys. But you are absolutely correct, extreme caution must be exercised in this regard.

Sally T

4 years ago

I thought the same as Neil, 'if they can't pay their mortgage how can they pay their rent ?'. If they did just hand back the keys they should be able to provide proof (mortgage statement) that their mortgage was always paid which should put your mind at ease.
There is also a moral issue, they couldn't be bothered to pay the mortgage on the house anymore because it isn't worth what they paid for it, yet they want to stay in it. How much money have they left the mortgage lender out of pocket ?
I would put the property up for rent as it stands, see if you get any interest, then go from there. You may get a much more suitable tenant without the hassle.

Mick Roberts

4 years ago

I’ve bought loads where the existing owner wanted to stay to rent afterwards.
They quite often make the best tenants.
And normally we get to keep them at least 5 years-Had one about 11 years now.

I wouldn’t worry about them not affording it before-Quite often their mortgage was more than your rent will be.
Because they’ve been in a dire position, they value u & your home SO SO MUCH, ‘cause they thought they would be losing it.

You do the figures, but from my experience, they make the best tenants. Saying that, the rest of mine aren’t great anyway ha ha. But seriously, eg. my examples are £900pm mortgage Capstone mortgages (dear), rent £600pm. Landlord is then their best mate.

Gees, come on Landlords, let's give these people a chance.

Mark Alexander

4 years ago

Reply to the comment left by "Mick Roberts" at "09/10/2014 - 07:27":

Mick

If you were doing these deals pre 2008 then fair enough, nowadays you can be locked up for it!
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Mick Roberts

4 years ago

Yes, what is the rule on buying, then letting them rent afterwards, because if vendor wanted to stay afterwards today, I’d buy it.
And then sort it out afterwards.

Is that rule u r on about for limited companies? Not little old me?

Mick Roberts

4 years ago

I'd still buy it, can't see a family go homeless. Get round it somehow, looks like the 5 year tenancy thing would do, would it?

Mark Alexander

4 years ago

Reply to the comment left by "Mick Roberts" at "09/10/2014 - 12:52":

Mick, I think you are missing the point. You MUST be registered with the FCA and the compliance is now so ludicrous that no regulated SARB deals have been done for over a year now - legally anyway!

Deals have been done of course but there have also been some big fines and prison sentences too.

Fancy a million pound fine?

See >>> http://www.property118.com/sale-and-rent-back-sarb-landlord-fined-1-million-by-fca/40763/

Also see >>> http://www.property118.com/ban-for-unfair-sale-and-rent-back-firms/24116/

Don't get me wrong Mick, SARB can be great, I was a pioneer of it. However, I also witnessed its abuse and influenced regulation too - see >>> http://www.property118.com/the-history-of-buy-to-let-sale-and-rent-back/397/
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