Residential mortgage but renting the property without consent!

by Readers Question

14:01 PM, 6th January 2014
About 5 years ago

Residential mortgage but renting the property without consent!

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Residential mortgage but renting the property without consent!

Hello readers,

For the last 3 years I’ve rented my flat on a residential mortgage whilst simultaneously living in a rented house. This is because of a change of a job which meant I had to move. I however couldn’t sell the flat due to negative equity. The flat contains roughly 15% equity and I have some savings.

I’m aware that I shouldn’t have done this, but the alternative was to default on the mortgage.

I want to get this sorted ASAP because it is now giving me sleepless nights. My options are therefore:

1) My current tenant has expressed some interest to buy from me, but lacks savings. I could therefore pay his deposit on a mortgage for him

2) Look for a BTL – this would need to be between a 75% to 80% LTV! ideally 80%, which seem difficult to get because I’m renting myself

3) Bury my head in the sand and hope that my mortgage provider doesn’t find out.

2 is probably the most likely outcome. If I did choose 3, if they did find out, would this make it difficult for me to simply switch to a BTL with someone else, should my mortgage provider call in the mortgage?

Many thanks Darren underthecosh



Comments

Neil Patterson

14:12 PM, 6th January 2014
About 5 years ago

Dear Darren,

This is a very common issue in these time for people that need to move, but selling is just not a viable option at the time with falling equity available.

The Stock responsible answer is you should always tell your lender as soon as possible. Many lenders are sympathetic to these circumstances and will give consent to rent. They may charge a small fee or increase the interest rate though and only be available for a certain period of time or they may even be able to transfer you on to their own BTL range.

However even though unlikely it is possible the lender will force you to repay the loan giving you 1 month or more notice.

Option 2 Looks like an excellent plan B to have in place incase your existing lender is not happy after they have been informed. Certainly 75% LTV is a standard amount to lend. If you need any help with that drop me an email on npatterson@property118.com.

Option 3 as I have said before I can not advice you to take, but a lender could find out tomorrow by accidental checks or never find out. I don't know from experience but I guess a lender would be more helpful if you told them yourself.

Option 1 sounds very risky as were is your security for the deposit?

Paul Willetts

14:37 PM, 6th January 2014
About 5 years ago

Hi Darren,
I moved 4 months ago and wanted to rent out my house for the same reason as you've mentioned... I called the lender, explained the situation and they simply agreed, they charged me £75 (admin!) and the rest is history.

I appreciate that it may not always be this easy but if you don't ask, you'll never know...!

Good luck!

14:43 PM, 6th January 2014
About 5 years ago

Hi Darren,

To answer your questions:

1) My current tenant has expressed some interest to buy from me, but lacks savings. I could therefore pay his deposit on a mortgage for him.

>>> Sorry, but there is no way you could pay his deposit on a mortgage for him.

2) Look for a BTL – this would need to be between a 75% to 80% LTV! ideally 80%, which seem difficult to get because I’m renting myself.

>>> There are plenty of 80% LTV BTL mortgages available, and one or two at 85%. They are not generally based on your income or circumstances, more what rent the property would achieve.

3) Bury my head in the sand and hope that my mortgage provider doesn’t find out.

>>> No, that is not an option! You are putting yourself and your mortgage at huge risk as you are breaking the T & C's and lenders are clamping down on this. You can contact the lender and ask them for "consent to let" or ask them to move you on to a BTL mortgage. There may be charges associated with doing this.

Mike McDonagh

14:45 PM, 6th January 2014
About 5 years ago

Hi IMHO and based on past experience, you are unlikely to run into any problems carrying on as you are unless:-
a) you fall into areas
b) you fail to arrange collection, forwarding or effective handling of mail, so for example your tenant sends back lender correspondence return to sender not at this address
c) if you apply for a second residential mortgage (on another property)
However as Neil says it is always best to have the lender on side if possible but it can depend on the lender. I can tell you that at the moment if you were with Santander you would need to pay £250 for "permission to let" with no other changes to the mortgage terms. But even then there is no obligation for them to say yes especially if there was any poor payment history etc.
Good luck

Shakeel Ahmad

14:58 PM, 6th January 2014
About 5 years ago

Neil's advise is sound. Has you tenant not heard of the Govn't help to buy scheme ? Paul may be lucky that the lender he was dealing was helpful & pragmatic. It is safe to assume that this is not always the case.

Your chances of getting the permission to rent, improves if your account had been running to their satisfaction. The permission is normally for three years & they than expect you to move back. The other issue is that they may ask you when you moved out & rented the property and if this is near the three years period you may not get a long breathing period which you may require.

You renting should not be an issue as the BTL will mainly based on the mortgage/rent cover mostly around 125% and say a salary of £20k per annum.

If your correspondence address is the same as your mortgaged property and if your's is not a flat & the managing agents/Freeholders had not approached them for outstanding service charges or ground rent than chances are that you would not appear on the radar of your lenders. If they suspect they may ask you to provide a Council tax record.

Hope above helps. being an Ostrich can be useful at times but only for a short period.

Jerry Jones

15:17 PM, 6th January 2014
About 5 years ago

Reply to the comment left by "Mike McDonagh" at "06/01/2014 - 14:45":

Santander

They charged me over a grand for permission to let a few years back. As it happens, despite feeling ripped off at the time, I am delighted, as I have a B2L property interest only at 0.99% (0.49 over base lifetime tracker!)

Neil Patterson

15:20 PM, 6th January 2014
About 5 years ago

Now that is what I call a result 🙂

Shakeel Ahmad

15:22 PM, 6th January 2014
About 5 years ago

Indeed, but it would have been better without the £1000. With banks you need to get blood out of stone mentality.

Spencer

16:25 PM, 6th January 2014
About 5 years ago

Interesting question and the advice does seem to largely suggest a BTL. Make perfect sense and will stop the sleepless nights.

The problem is, i dont understand how anyone could ask for permission from their lenders to rent. If you have been renting the property for a while then this is going to be very awkward surely?!

Dont they need to value the house and find out the rental income? If so, they will see tenants already live there.

A BTL with a different provider will take the concern away, but will cost more (depost / fees etc).

How can you ask for permission if you have already done it?
What if the provider a) doesnt do BTL or b) refuses or c) values house and finds out its already rented?

Neil Patterson

16:45 PM, 6th January 2014
About 5 years ago

Reply to the comment left by "Spencer " at "06/01/2014 - 16:25":

Hi Spencer,

You would just need to own up and say you didn't realise it was an important issue and throw yourself on their mercy. However as documented above lenders can be very helpful as the last thing they really want is a repossession.

For no more than permission to let there is no need for a revaluation and rental stress testing unless that is their criteria.

The risk as you point out is the lender may not be helpful, but I can't advise anything other than being honest.

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