R2R challenges?

by Readers Question

15:02 PM, 7th January 2020
About 2 months ago

R2R challenges?

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R2R challenges?

Rent-to-Rent (R2R) is taught in many property training courses, but what they don’t tell you is that the paperwork is not so straightforward, especially if they are used as HMOs. And yet I get letters every week from companies wanting to “ease this burden” and run my HMOs for me.

I would be grateful for advice from those who have properly overcome the following objections and issues, please:

1. Mortgages – R2R is considered by lenders to be sub-letting, and not many like that, so might pull the rug out from under the owner/borrower. Many don’t allow HMOs unless all rooms let on a single tenancy agreement (this is fine for student housing, but not for working tenants).

2. Insurance – likewise many insurers (including the big ones usually recommended for portfolio landlords) don’t like subletting.

3. R2R agreement (between the owner and the R2Renter), to try to show that it is a single let (for mortgage and insurance) and yet allow them to run the R2R/HMO. Does anyone have a solid R2R agreement?

4. HMO licensing (might be the easiest to answer) – is the HMO Manager (as shown on the license) the owner or the R2Rer? Is the R2Rer an agent or a tenant (if she/he doesn’t live there)?

Many thanks, and HNY2U all.

Richard



Comments

Richard Peeters

17:45 PM, 9th January 2020
About 2 months ago

Hi Mark, without wanting to copy the whole thing, in 1.1 it mentions "Permitted Use … for a maximum of [ ] residents.", and in 22.10 it mentions "Not to sing or dance or play any musical instrument … as to be audible outside the Property or any other occupiers of the Property.", but otherwise no mention of multiple occupiers. but not really mentioning maximum number of sub-tenancies.

This could mean this agreement could work for a student let with one joint -and-several AST, but not individual agreements for working occupants. I am hoping to be corrected there, please.
Robert: as an owner with mortgaged, licensed HMOs. No-one is keen to provide a copy of their agreement!
Can any of the R2R trainers out there shed more light on these dark corners, please?

Mark Alexander

18:24 PM, 9th January 2020
About 2 months ago

Reply to the comment left by Richard Peeters at 09/01/2020 - 17:45
Hi Richard

The document was drafted by Justin Selig at Selig & Co solicitors. We are simply selling it for him for commission. Accordingly, he would be the best person to answer any questions you may have and to quote for any changes you might require. That is likely to be far cheaper than starting with a blank sheet of paper with another solicitor.

Justin’s contact details should have been in an email sent you you confirming your order.

Richard Peeters

18:38 PM, 9th January 2020
About 2 months ago

Reply to the comment left by Mark Alexander at 09/01/2020 - 18:24
Thanks Mark!

Richard Peeters

11:10 AM, 15th January 2020
About a month ago

Reply to the comment left by Richard Peeters at 09/01/2020 - 18:38
Can anyone (owners or R2Rers or mortgage advisers) recommend ANY mortgage lenders who are happy to lend on R2R properties?

Howard Reuben CeMap CeRER

12:09 PM, 15th January 2020
About a month ago

"..... recommend ANY mortgage lenders who are happy to lend on R2R properties?" .... simply, no.
Sub letting is a non allowed activity and is stated in mortgage product criteria and reiterated in the mortgage Offer (ie the legally binding contract between lender and borrower).
Unencumbered properties may be ok for R2R, because only you own it. Mortgaged properties are of course also 'owned' by the bank due to the charge secured on the property, and the T's and C's of the Offer must not be breached.
Unless a prior agreement is formally confirmed by the lender, the property (irrespective of whether it is a single let, holiday let, HMO or otherwise) must only be let out as per the product criteria stipulations.
As also mentioned in earlier posts, having the wrong mortgage in place may also invalidate the property insurance in place too.
We are a very busy property investor focused mortgage Firm, and yet we do not get involved in funding R2R schemes at all. We have never knowingly enabled a new mortgage for a property that was subsequently sub let out.
So, to conclude, there may be lenders and insurance companies providing solutions for R2R scenarios, but be wary of the legal position for you, and the people who live in your property. The occupants deserve a peaceful enjoyment of your property and should any misfortune arise and a claim is made against your insurance, you need to make sure that the policy is not null and void due to an occupancy which breaks the mortgage terms.
caveat emptor

Mark Alexander

12:17 PM, 15th January 2020
About a month ago

Reply to the comment left by Howard Reuben CeMap CeRER at 15/01/2020 - 12:09
Thanks Howard.

My understanding was that there was at least one lender which does holiday let mortgages. Do their T&C's also prohibit subletting?

Also, what about commercial lenders?

Richard Peeters

12:22 PM, 15th January 2020
About a month ago

Reply to the comment left by Howard Reuben CeMap CeRER at 15/01/2020 - 12:09Thanks Howard, all those cautions and warnings have been noted already.

You wrote: "there may be lenders and insurance companies providing solutions for R2R scenarios" and it precisely those I am trying to identify.

Howard Reuben CeMap CeRER

12:54 PM, 15th January 2020
About a month ago

Reply to the comment left by Richard Peeters at 15/01/2020 - 12:22
Hello Richard. We work on a specific, personalised and case-by-case basis, so please contact me for advice on which lenders and products you may be eligible for.

There is no one-answer-fits-all in this particular strategy (so many other factors are crucial too, eg portfolio size, experience, assets / liabilities, age, net income, credit status etc), so whereas there may be an agreement to lend by a commercial mortgage lender, or holiday let lender etc, they may say yes to some people and no to others. Same as all mortgage applications of course.

In my experience there is absolutely no benefit to anyone for a list of lenders to be banded about, because the lenders only want to receive properly packaged cases from experienced brokers who carry out a lot of the initial underwriting and due diligence up front for them, and not to be bombarded by tyre-kicking enquiries (which happens a lot) that take up a huge amount of their resources for no return.

Our lender partners would not take kindly to me listing them in this type of 'quirky' discussion.

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