Buy to let?

GrizzlyAdams_2

I'm looking to buy a property from my brother and then let it out. Problem is, I haven't got the 25% deposit for a buy to let. So I was thinking, how about if I was to get a regular mortgage (at 10% deposit and a much lower rate) and then let it out. Would this work? Pitfalls?

Thanks.

_Andy_

No, because that would be fraud as it's not going to be your main home.

bingibongi

If you have no moral compass I see no problem - save for the possible court appearance and criminal record.

You do see what your suggesting is wrong dont you ?

GrizzlyAdams_2

Interesting replies in light of the 'moral compass' of financial institutions.

I wasn't, and am still unaware, that it is a crime, so no, I didn't see what I was suggesting was wrong. I certainly have no intention of committing fraud and post #2 is rather unhelpful and a touch insulting.

I do however, have every intention of trying to get around ridiculous terms and conditions, which effectively stifle the average person's ability to purchase a property due to the the greedy ineptitude of large financial organisations, who make billions of pounds from the thousands of pounds of millions of people; only to then lose the money and make those same millions pay for it.

This is a moneysaving website, and skillfully circumventing rules and terms & conditions, as long as it is legal, is what I always thought it was about.

Getting back to my original post, I spoke with a broker about it today and he, fortunately, wasn't particularly judgemental. He informed me that, assuming I successfully got a residential mortgage, as long as I then asked for and was given permission by the lender to let, it would be fine. However, the lender would probably increase my interest rate to reflect that I was letting, or it could ask for a certain number of monthly repayments up front. Worst case scenario, and highly unlkely in his view, the lender could revoke the mortgage.

I also spoke to someone who has worked for three separate lenders and he advised the same but said that if I lived in the house for at least 6 months to a year first they would probably give permission to lease.

Based on the above, I won't be doing it. But perhaps someone else will find this information useful.

Caz3121

I agree that this has worked in the past but if you have a look at the board there are a number of posts where people have been refused permission by the lender based on LTV. (which is sad as in a number of cases this was the only alternative to reposession) Guess it is a gamble you take that may or may not pay off

JohnnyM_2

I sympathise with your dilemma as I have been in the same situation. I have a number of BTL properties and some of the mortgage deals I have on them have ran off and I am now paying SVR's. Now an SVR at say Mortgage express is ok as its around a couple of percent, however, the SVR on my Standard Life mortgages is 5.97%!

I am in the process of moving my Standard Life mortgages and I too discussed the ins and outs of taking residential mortgages instead of a BTL mortgage with my financial advisor because the BTL rates are higher, but most importantly, the BTL fees are absolutely huge! He told me a number of reasons why I shouldnt do it, one being that many lenders now check the votors roll to ensure you live there, another being that if you already have a residential mortgage on the home you live in this sets alarms bells off.

I appreciate that banks have had their fingers burnt by BTL borrowing but most of this has been these high priced new build apartments that have sprung up in every town and city only to plummet drastically in the recession. The old victorian terraces (which I have) have reduced in price but they havent dropped as drastically and there has remained a market for such properties throughout the recession. Over the years I have built up a good amount of equity on my BTL's yet the banks still think that I am a high risk.
What is so risky about borrowing £60k against a terraced house worth £100k for BTL purposes by a person who has been doing BTL for over 10 years? Why the need for such inflated rates and fees when residential mortgages are so much cheaper?

Incidentally I have just fixed a load of borrowing with the Post Office BTl at 6.19% for 5 years with a £599 fee. Not ideal, but the best on the market for me and I felt a need to fix at least half of my borrowing so as not to get stung when things start to rise again.

belfastgirl23

To me it's a similar issue to insuring a car under your insurance for someone else to drive. Would you have to lie to get buildings insurance? If not, what if the bank found out. If so, what if something went wrong? if your tenants trashed the place would you end up paying for it yourself?

TBH though if you haven't got the 25% deposit unless your brother is giving you a very very good deal, the banks could be saving you from yourself in this situation. My own personal opinion is that at the present time, the only reason to buy a house is if you plan to live in it for several years till the market stabilises.

I do figure as a general rule if you have to lie to get something then it is probably something you're best off not having.

Radiantsoul

Your broker seems to have given you dodgy advise imho. What happens if the lender refuses permission to let out the property(as they surely will). You will then have an empty property or have to live their yourself whilst maintaining payments.

As to the ridiculous terms and conditions it seems to me that it is not as if you are desperate for a house, you simply want banks to support your business of property letting. At 90% equity the risk to the bank is far higher than 75% or 60% equity. The banks are essentially lenders and not shareholders which is what you are asking for. I would say that had banks always demanded 40% deposits on BTL and 90% of residential mortgages then the crisis would have been far less severe(obviously commercial mortgages would need to be similiarly constrained).