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

23:28 PM, 6th July 2012
About 7 years ago

Every situation is different but how much should a LL consider provision should be made for any potential heirs.
How hard should you work for the next generation.
Do you owe them anything!?
You might want to pas a little benefit on but should you really cause yourself so much detriment inb hard work to provision the coming generation with their own self supporting financial structure.
The maximum help I would EVER have wanted would have been for there to be sufficient monies to pay my mortgage cosats.
I would then have not been in such a tight situation all my life and I would have definitely appreciated that level of assistance.
I think Sir Richard Branson has alread stated he is not going to leave loads of money to his heirs.
there is more to life than just easy money.
Why should you work your -uts off for your dependents and not have the enjoyments of your labours.
So what if you spend it all, it is yours to spend as you wish.
Personally I am in desperate financial straits but I don't care I want my mother who has just downsized to go and spend the money whilst she is still physically capable of enjoying the money.
Mind you that is not my sister's attitude who is a money-grabbing -itch.
So I think moideration in things.
So a little bit of assistance maybe but not all the fruits of your labours, you should cash most of it in and spend it whilst you can as you can't take it with you.

Mark Alexander

23:40 PM, 6th July 2012
About 7 years ago

My understanding from comments on other threads Paul is that you are also retired yourself. Under those circumstances, absolutely your Mum shouldn't be expected to support you. If you have children yourself the likelihood is they could be nearly as old as me and they should not expect you to provide for them either. If you have grandchildren though I suspect they will still be of school age. Now in that case, I would expect for their parents to provide for them and make provisions to do so if their contributions to the household stop for any insurable reason too. I publishing another blog tomorrow at 9am. As an ex fire and rescue person this story will no doubt bring back some memories for you. It's called Barry's story.

PS - some landlords couldn't or don't want to spend everything before they die. For some people, and I'm one of them, leaving a legacy is important.

11:45 AM, 7th July 2012
About 7 years ago

Thank you Mark, I have emailed you.

21:28 PM, 7th July 2012
About 7 years ago

Yes agreed Mark it is all about the choices you wish to make.
However I don't believe there is an obligation to work hard for the next generation whilst you suffer all the hard work without the benefits of such hard work being available to you.
Of course should you choose to do so that is not an incorrect choice, it is just your choice.
Nobody can dictate as to which way you choose to conduct your lifestyle.
Certainly not having ANY dependents that I am aware of!!, I have NO obligations.
Never having such circumstances I can't really say what I would do.
Legacies though are all well and good but should you really bust a gut just to make someones elses life easier no matter how you might be related.
I think moderation in everything.
So I say due consideration for a legacy circumstance but not to the point you work yourself into an early grave just so the beneficeries of your legacies can put their feet up and have an easy life on you.
I think you do have a responsibility to yourself to enjoy the fruits of your labours, but still at the same time arranging to leave some sort of legacy consideration behind if you wish.

9:53 AM, 9th July 2012
About 7 years ago

My partner has died aged 38 without any will in place he has nine properties one without a mortgage seven are buy to lets and one residential. He has a surviving father of 64 and a brother.
I do not work as was living with my partner and am also pregnant with our child.
about half the loans are above 80% loan to value and remainder would equate to approx about £350,000 equity, will all these properties have to be sold to clear the mortgages or possibly transferred to his estate ? his Father intends to appoint an executor re probate , also will there be an Inheritence tax liablity ? I am also concerned as to how long I can stay in my late partners property! His father is consdiering remarrying soon so would this effect my child ( his grandchilds future lineage ).No life cover was held.

13:33 PM, 9th July 2012
About 7 years ago

Under the Laws of Intestacy, your partner's estate will be handled according to the laws of intestate succession. You say 'partner' so I assume that you were not married?

If this is the case (i.e. your partner sadly died without a valid Will, he wasn't legally married and he has no living children), the beneficiaries of your partner's estate - according to the family tree you have described - are his living parents (father only?).

Of course this is a matter between you and your partner's father and possibly (if you need to) legal advisers too, to establish 'dependants' benefits / rights.
Your situation, as you have explained above, perfectly endorses my previous points that the matter of making a Will and implementing life insurance is absolutely ESSENTIAL and that placing policies in Trust (especially for unmarried partners) is equally as important too - although, as previously stated, our experience shows that a policy bought online, or from a supermarket RARELY comes with any proper supporting financial advice, even though the relatively small cost of implementing a Will and life assurance massively outweighs the cost of inheritance tax (as may currently be the case for your partner's father).
Other potential issues - as per the correct reason behind this websites life insurance calculator for landlords - is the need to find the funds to repay mortgages and ultimately. Of course a Will can also specify beneficiaries (irrespective of marital status), as well as detailing distribution of assets and can also help to mitigate other tax and final expenses too.

Your situation probably does need the assistance of a solicitor to ensure the correct distribution of your partner's estate, but please also consider advice from a face to face financial adviser who can assess and if necessary arrange an updated financial plan for you and your baby.

Professional Adviser

Mark Alexander

15:41 PM, 9th July 2012
About 7 years ago

Please accept my deepest condolences. As moderator to this website I am in the unique position of being able to see your email address. I have sent you a more detailed email as I felt it was not appropriate to ask for more information, with a view to being able to assist you further, in a public environment.

3:56 AM, 10th July 2012
About 7 years ago

I would suggest you are stuffed.
Get down to the council and advise them of your circumstances.
You will be homeless in the not to distant future unless your partner's father feels generous.
I think you will be lucky with any equity after the properties are sold at auction.
In fact you are entitled to be housed now as technically you have no right of ocupation of the property you are in.
You are or will be entitled to a 2 bed place all paid for by benefit.
You won't have to work for 5 years after the child is boirn.
You will live quite a nice lifestyle on benefit.
But you are essentially at the mercy of the executors.
They may have to make unpleasant decisions because of tax circumstances.
Don't reckon on remaining where you are.
Start looking for rental accommodation.
Your present lifestyle will suffer it would seem.
It really all depends on the grandfather of your soon to be born child.
I wouldn't rely on him.
Draw up alternative plans as you good be booted out of the property.
You have no tenure whatsoever.
Indeed you are essentially squatting
You could be removed by bailiffs 1 month after a court notice.
A word with the CAB might be a good idea.
Were you in Scotland you would be in a far better situation as people like you have certtain rights.
This is NOT the case in England yet.

7:13 AM, 10th July 2012
About 7 years ago

Perhaps when BTL mortgages are sold there should be an obligatory consultation on the ramifications of LL death.
Personally I couldn't care as I have no dependeants.But clearly if you have a property portfolio that is performing providing the LTV's etc remain the same I cannot see why such property could not be transferred to a beneficiary even if under legal age.
Death it seems causes distress sales when really the beneficiaries could agree to keeping everything going if only the lenders agreed.
such distress sales could actually cause losses with possibly no recovery whaeras keeping the portfolio going might prevent such such loss if there is positive cashflow.
However govts don't like this they want to get their grubby mitts on any tax possibility whhich is which the suggested life insurance etc solutions might prevent distress sales of such well performing property.
Certainly consideration as to what might happen to a portfolio in the event of untimely demise is not something that most LL have thought about.
Certainly I would now consider such circumstances were I ever in a situation that would warrant this life insurance solution.

9:45 AM, 10th July 2012
About 7 years ago

Hello Paul - My own personal Client files show that we do indeed bring up the subject of life cover for EVERY BTL mortgage arranged (this is our standard process and an element of our Fact Find checklist) as we have felt for years that irrespective of whether a mortgage is for a residential home or a BTL investment that ultimately a mortgage is a debt and a debt needs to be repaid to the lender on death. The replies we have on record range from the grateful Clients who had not thought of the ramifications before and who then implement proper financial strategies in the event of death, to those people who have other strategies (such as separate investments /cash which could be used) to those people who reject our proposals / recommendations irrespective of whether they have families, dependents or otherwise.

The simple issue of taking out life cover (written 'properly' in Trust) is such a low cost, quick, tax-efficient and transparent solution that I still wonder (in sad amazement) why the vast majority of mortgage 'salesmen' don't strongly recommend it to all of their Clients.

In summary, a mortgage is a debt which must be repaid, whereas property (if properly protected with financial strategies in situ) can be passed as inheritances without issue saving peoples homes, families inheritances and also - as you say - saving the value of property as they don't then get sold cheaply as probate sales by the forced-sale lenders.

Honestly, and this goes to the general public reading my rants - how many BTL borrowers have considered the serious implications of leaving their loved ones the stress, heartache, emotional drain and possible loss of income, assets, investments and future financial security because they did not have the opportunity of being 'face to face' advised previously?

Anyone can buy a policy - most people who have though, do not have sufficient cover (there is a recent study showing a £1.3trillion protection gap in the UK) and for those who do have some cover in place how many have their policies written in Trust?

Did you know that it's not just life cover that can be placed in to Trust, but also pensions, investments and even properties too?

The final point today (too many meetings now to prepare for and attend!) is that it's not just the 'accidental landlord' that doesn't prepare appropriately, but so many professional / portfolio landlords that we have become across who don't either.

Maybe I should start a campaign! 🙂

Professional Adviser

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