Mortgage with a council grant?

by Readers Question

9:19 AM, 22nd August 2019
About a month ago

Mortgage with a council grant?

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Mortgage with a council grant?

Does anyone have any experience with grants from the council, and subsequently, getting a mortgaging on a property?

I own a long term empty property which is eligible for a £25k grant from the council to bring the property back into rentable condition.

The main condition surrounding the grant is that you must rent the property to LHA tenants for 5 years or ‘lease’ the property to the council for 5 years once the council gives you the grant and you finish the work.

If you wish to dispose of the property within those 5 years, you are simply required to repay the grant in full, otherwise the grant is just free money.

My concern in how mortgage companies will view the situation and whether it would reduce my chance of getting a, good rate, mortgage.

Any thoughts?

Thanks

James



Comments

Neil Patterson

9:21 AM, 22nd August 2019
About a month ago

Good question and I have not personally run across this before.

I suppose it will also depend on the Loan to Value required. Would you be able to supply us with the figures?

Howard Reuben CeMap CeRER

10:11 AM, 22nd August 2019
About a month ago

An interesting conundrum.

1) "The main condition surrounding the grant is that you must rent the property to LHA tenants for 5 years or ‘lease’ the property to the council for 5 years once the council gives you the grant and you finish the work."

This is the first quirk - most BTL lenders require a straightforward 6 or 12 month tenancy agreement (some up to 36 months) and of course there are still some lenders who won't lend on a property with 'DSS'/LHA tenants. So straight away the quantity of lenders that you would otherwise have access to, has significantly shrunk.

2) "If you wish to dispose of the property within those 5 years, you are simply required to repay the grant in full, otherwise the grant is just free money."

How is the grant money 'contracted' to you? Is it a charge on the property? This may be a consideration (issue) for the lenders too. A copy of the grant conditions would need to be reviewed before presented to any lenders.

so, taking the above in to consideration ....

3) "My concern in how mortgage companies will view the situation and whether it would reduce my chance of getting a, good rate, mortgage."

..... it won't be straightforward, and of course there are all of the other factors to assess as well, such as size of existing portfolio, aggregate LTV's, required LTV, rental income stress calculations etc.

We can possibly assist on a case by case basis, and so to contact my Team of Brokers, click on my profile link above.

Darren Peters

10:50 AM, 23rd August 2019
About a month ago

Would it be possible to create 5 consecutive tenancies: one for the current year then 4 more forward dated and signed? Maybe ask the council this and get response in writing.

Then the mortgage lender has an AST to keep them happy, the council has its guaranteed 5 years and your tenant is still the council who are less likely to default on the rent.

Prakash Tanna

12:25 PM, 23rd August 2019
About a month ago

Hi,
I Have done many of these in the pat and never had any issues. The condition with the LA will be that you have to Rent out to LHA tenants for a 5yr period using 1yr AST's at LHA rate or Lease it to them for 5yrs for a further reduced rate. They do not place a charge against the property, it's an agreement between you and them. As long as your lender does not have a restriction against renting to tenants in receipt of HB you should be fine and I don't see why you would have to declare it to them? It's important your house insurance covers you for renting to HB tenants. With all of mine (and I did a few many years ago) the properties were already mortgaged as buy-2-lets and I had no problems. Hope thats useful. Regards, Prakash @ TannaProperty.com

Prakash Tanna

12:27 PM, 23rd August 2019
About a month ago

Reply to the comment left by Darren Peters at 23/08/2019 - 10:50
This is not necessary. You rent it out as you would normally (to tenants in receipt of HB) with 1yr AST and then renew or let it roll on as a Periodic. If/when they move out you have to rent out again to tenants on HB until the end of the 5yr period.

Tom Doolin

14:33 PM, 23rd August 2019
About a month ago

Hi James
I've only done one of these and it turned out to be an absolute nightmare, obviously I was deterred from pursuing any more.
Firstly, if you take the Grant you never get any rent. The Council recover their Grant from the Rent each month until it has been fully repaid, which is fair enough. I was fortunate in that my property had just been completely refurbished and was available immediately. This meant that I received the Rent every month.
Secondly, to preserve the Tenants "Right to quiet enjoyment" I was told that I was not allowed to visit the property nor even have a key for it. I was assured they would take care of all maintenance issues and Tenant problems throughout the term of the agreement.
After a trouble free three years the Rent stopped arriving. When I queried this with the Council I was told that as the property was uninhabitable, they would no longer be making any payments. Of course I then visited the property with my illicit key.
It was in a dreadful state. It had obviously been used to grow cannabis. The flooring, kitchen and bathroom had been destroyed and every single wall was full of damp and green mould. I learned that the old flooring, which was in a pile in the front garden, had been deposited there by the Council. When I asked them to come and remove it I was told it would be at my expense as they had terminated our contract and were no longer responsible for the property. After a long battle they did eventually remove it at their own expense.
My enquiries also revealed that the property had stood empty for 18 months which covered two severe winters.
I battled the Council for over two years for compensation and they fought me every step of the way. I eventually spent over £5,000 refurbishing the property and received compensation of £2,000.
You only have to search this website to see how many Landlords have extreme difficulties when dealing with Councils.
They change the rules when it suits them and if there is a change of Policy or personnel then no consideration whatsoever is given to Landlords.
I have no desire to burst your bubble but the more facts you get the better informed your decision will be.
Good luck.


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