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?
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6:15 PM, 10th July 2012, About 14 years ago
Hi Common Law Spouse,
I’m sorry to hear of the predicament you find yourself in.
I’m not sure of the issues re: the properties specifically without more information, but the laws of intestacy previously referred to here will apply, however, please do consult a good solicitor.
Intestacy provides for the estate to pass to your partners issue, and that applies to issue “en ventra sa mere” ie unborn children. Therefore the estate should pass to your child and as such the person entitled to apply for a Grant of Letters of Administration to deal with the estate is you as the child’s parent – not your partner’s father.
Equally, if you were co-habiting with your partner for more than 2 years, you would probably have a very good claim against his estate for yourself – and you should consider this before acting on behalf of your child, as it could put you in a very difficult position otherwise.
I’m not sure how this website works but i’m happy to chat through your options if you would like.
Whatever happens, please take advice!
Kind regards,
Probate Lawyer
Comments: 1108
10:47 PM, 10th July 2012, About 14 years ago
Yes I think you are so correct.
When you think how much effort LL go to when building up portfolios, for the sake of a relatively small monthly payment having such covers in place will essentially protect all the LL hard work for his heirs.
Perhaps LL should consider the efforts they put into their business should not unecessarily be wasted in the event of their untimely demise.
When you think that what they do is to provide for themselves and their heirs the thought of the govt getting their grubby mitts on all you’ve worked for must and would be most galling.
To the point where you would want to cover the situation just so you can stick 2 fingers up to the govt to prevent them taking away from your family all you have worked hard for.
that would be the convincer for me.
Anything to -iss the govt off would please me.
10:29 PM, 10th July 2012, About 14 years ago
Hi,
You don’t say what happens if it is a joint mortgage and one
person dies?
10:35 PM, 10th July 2012, About 14 years ago
Hi
You don’t say what happens if it is a joint mortgage and one
person dies?
Member Since January 2011 - Comments: 12206 - Articles: 1402
7:18 AM, 11th July 2012, About 14 years ago
Hi Steve, the answer to your question is contained in this linked article >>>
https://www.property118.com/?p=29158
1:48 PM, 13th July 2012, About 14 years ago
How silly of the landlords not to set up a company. It only costs £75 doesn’t it? As companies cannot die the problem is solved isn’t it?
Member Since January 2011 - Comments: 12206 - Articles: 1402
10:27 PM, 13th July 2012, About 14 years ago
There are far more implications though, e.g. audit costs, the fact that most BTL mortgage lenders insist on personal guarantees (guarantors are mortal hence no benefit), CGT clock never stops ticking (see https://www.property118.com/?p=201), no CGT annual exemptions for companies, less lenders prepared to lend to companies hence less competition hence less choice of products and competitive pricing …………… shall I go on?
Member Since January 2011 - Comments: 12206 - Articles: 1402
3:13 PM, 3rd August 2012, About 14 years ago
UPDATE – we have now added a new dropdown to the Navigation Bar under “Landlords Log” to group the most popular articles in this series. See “Succession Planning”
Member Since January 2011 - Comments: 12206 - Articles: 1402
9:32 PM, 28th November 2012, About 13 years ago
This is now officially my best read blog post 🙂