What happens to mortgages when a landlord dies?

by Mark Alexander

16:26 PM, 5th July 2012
About 7 years ago

What happens to mortgages when a landlord dies?

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What happens to mortgages when a landlord dies?

I wrote an article a few weeks ago about a conversation I’d had with a financial advisor about what happens to mortgages when a landlord dies. I didn’t think it would be a very popular article as it’s quite a morbid subject and none of like to think too much about death do we? I was very wrong!

As landlords, our properties and the potential for them to generate rental income are pretty certain to outlast us. However, the feedback I received from my article really got me thinking. I also had an approach from an  insurance brokerage which provides advice to landlords on the whole of the insurance market. They had designed a really cool calculator which works out the chances of surviving to the end of your buy to let mortgages based on official mortality rates. I tried this and so did a few of my landlord friends, after which we all agreed to go to the pub, have a few beers and drown our sorrows. Sod it we thought, we might as well go now as we don’t fancy our chances based on the results from this bloody calculator. If we don’t make it back the kids can pick up the tab LOL.

Seriously though, this got me thinking through a few what if’s:-

  • Would our mortgage lenders just transfer the mortgage to my beneficiaries? Probably not!
  • Would there be enough equity in the properties for my beneficiaries to refinance them? I don’t really know!
  • Would the rental income be enough to satisfy the lenders criteria to refinance if interest rates went up? Depends!
  • What would be the cost of refinancing?

That’s when I first decided to build a calculator of my own. One which would work out a ball park figure for the minimum life insurance a landlord might like to consider buying.

The bar was great fun by the way, much more so than playing with the calculator, but as I sat recovering from the hangover the next day, realising I wasn’t dead and that I’m definitely not immortal, I decided to review my own arrangements. Result, my other half is very impressed, time to use up those credits I feel. Right, I’m off to speedway!

Related articles in this series

 Part one – Should buy to let landlords buy life insurance?

You are here >>> Part two –  What happens to mortgages when a landlord dies?

Part three – Barry’s story – it could have been you!

Part four– Why up to 40% of your life insurance payout could end up in the hands of the tax man.

Part five – Financial Advice – how do you pick an adviser?



Comments

Anne Brown

19:13 PM, 5th July 2012
About 7 years ago

yes, but did you get to the bottom of what happens to a b-t-l morgage when the landlord dies?
thank you - just curious -not planning to go anywhere yet!

Mark Alexander

19:21 PM, 5th July 2012
About 7 years ago

I did indeed, the loan has to be repaid. In the past, lenders have usually allowed joint applicants to take over full responsibility the mortgage and remove the name of the deceased. Lenders are less likely to approve this type of arrangement since the credit crunch as they are trying to recoup cheap money and lend it on new terms which are far more profitable. Some lenders have stopped lending altogether (e.g. Mortgage Express, Capital Home Loans and Irish Permanent) and are actively seeking to reduce their loan books wherever possible. What did you think of the calculators by the way?

Anne Brown

19:07 PM, 5th July 2012
About 7 years ago

thank you. didn't get around to the calculator - bit scary!

Regards

fb.

________________________________
From: Disqus
To: fiona.brown007@btinternet.com
Sent: Thursday, 5 July 2012, 19:21
Subject: [property118] Re: What happens to mortgages when a landlord dies?

Mark Alexander wrote, in response to fb:
I did indeed, the loan has to be repaid. In the past, lenders have usually allowed join applicants to take over full responsibility the mortgage and remove the name of the deceased. They are less likely to approve that since the credit crunch as they are trying to recoup cheap money and lend it on new terms which are far less competitive. Some lenders have stopped lending altogether (e.g. Mortgage Express, Capital Home Loans and Irish Permanent) and are actively seeking to reduce their loan books wherever possible. What did you think of the calculators by the way? Link to comment

1:08 AM, 6th July 2012
About 7 years ago

Calculators are good as a starting point and getting public thinking about things they may not have done, but no website / calculator is an alternative for 'face to face' advice with the right Advisers. And I mean 'AdviserS' (in the plural). How many insurance salesmen offer Trusts? How many insurance products are bought with the understanding of product exclusions (including geographical, medical etc)? How many online insurance comparison furry animals or opera singers actually understand the individuals requirements, family situation, tax position, final wishes etc? So, yes, a calculator serves a purpose, but caveat emptor because what they don't do is clear up the mess that unadvised (or worse, mis-advised) purchases bring about.

3:47 AM, 6th July 2012
About 7 years ago

Personally I don't care what happens after I die.
Most of my properties have negative equity which will be the case for years, even after I've popped me clogs.
So my assets will be liquidated and I will not have any estate to repay what is owed.
I just want max income til the day I die.
Won't be any equity so am not bothered what happens.
Sorry for the poor old tenants but there won't be anything I can do!!?
Any cash I have will be hidden from everybody.
I might leave info as to where a substantial sum of money or krugerands might lie.
Highly unlikely but it won't be in my estate for the lenders to get their grubby mitts on!
I hope I go owing as much as possible with no estate value.

9:32 AM, 6th July 2012
About 7 years ago

Observed parties taking long time to sort out deceased's multiple btls (all with one provider). Eventually 'they' got itchy and demanded enough houses were sold off (if any gain on each house!) to plough back in and bring the loan to value ratio down to 60%. Which does not just mean 40% of the property stock when you do the maths - it's more like 50% of these money spinners spun down and out so to speak for seemingly no good reasons. Tip - maybe spread your providers - but lose your discounts??? mmm.
££$$###+-+-+-///*&Maths demo:
One example is, if there was 15% down on each house already and there was a loss on sale of 5% of original value (net therefore 10% turned to cash) - if half the stock were sold that would only bring the ltv down by 10%. So 50% disposal (half of all stock) equates to drop from say 85% loan to 75% loan - so still a way to go to! I'm sure my maths isn't quite right but you get the idea. Scary.... Ignore ? Maybe.

Mark Alexander

12:33 PM, 6th July 2012
About 7 years ago

That was one of the points I was trying to make Gerald, thanks for expressing it so eloquently. I wonder if Paul Barrett would feel the same way if he had a dependent family, i.e. wife and children? I suppose he has a fair point if the only people who stand to inherit are self supporting, none dependent adults or the local cats home. I've told my parents to enjoy what they have worked for as my brother and I can now look after ourselves without an inheritance. Until we got to that point though I know my parents made provisions for us and I'll do the same for my loved ones to ensure that my demise will not ruin their lives. I also agree with many of the points made by Professional Adviser. Not sure I would want a salesman in my home, that's very 1980's these days. His points regarding advice as opposed to buying off price comparison sites though is spot on though, that's why we partnered with Drewberry to produce the calculator as they offer what we consider to be the best of both worlds, i.e. full advise with modern thinking and modern technology.

12:55 PM, 6th July 2012
About 7 years ago

Some very good points are made here. I'm Tom conner, a Director at Drewberry Insurance, the company which co-designed the calculators with Mark Alexander, founder of Property118. At Drewberry Insurance we speak to people on a daily basis that have inappropriate policies set-up via non-advised channels so we are firmly behind advised sales where everything is done properly (including trusts etc). This calculator isn't designed to replace an adviser, it's designed to highlight potential risks which should lead to speaking to an adviser. However, with modern communication technology I think that face-to-face advice is a little outdated now, with people preferring to speak to an adviser over the telephone. What do you think?

14:42 PM, 6th July 2012
About 7 years ago

Hi Tom - as a 'face to face' Adviser for two decades now, and with a continually growing Client bank of new Clients via referrals and professional introductions, I will have to strongly disagree that people prefer to speak to an Adviser over the phone. Indeed, yet another meeting this morning is testament to the fact whereby my new Client could not stop thanking us for the personal, in depth, educating, understanding and insightful discussion that we had - which took about 2 hours, and so how many 'over the phone' "advisers" would do that? I am not against a multitude of avenues for people to get advice, but my experience of helping new Clients to deal with the mess that insurance salesmen have implemented upon them, I can only but say that face to face advice is best. And no, this is not a tout for any new business for me - we don't advertise, nor market ourselves as our Clients throughout the UK (of which we provide a service to about 5,000) are all recommended to us in the first place and we are - thankfully - very, very busy. ... another testament to my fundamental business model of face to face advice. I wish you well with your project (with over 60million people in the UK, there's enough work for all good Advisers) but internet / remote / telephone financial 'advice' has been tried time and time again and the only survivors are salespeople, not Professional Advisers. Caveat Emptor, again.

Mark Alexander

22:05 PM, 6th July 2012
About 7 years ago

Who could blame you for sticking with a proven formula which has kept you in business and so many clients happy and well protected for all those years? I once had a client who flew all the way from China to see me when we could just as easily done business over the phone and the internet. It's horses for courses I suppose. We do still receive several telephone based enquiries from people who want to meet face to face with an advisor. If you would like to have a discussion about us referring some of those enquirers to you I'd very much like to hear from you. My email address is mark@property118.com - No promises we will do business of course, let's just have a discussion.

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