I'm moving out and renting out...

Danstable

...and I currently have a two year fixed rate mortgage with the Alliance & Leicester. I expect that I can let the existing mortgage run to the end of the fixed term before changing to a buy to let....but do I have to inform the lender about my change of circumstances?

Please also correct me if I am wrong about being able to wiat until the end of the fixed term before switching mortgage.

Thanks in advance,

Dan

HGLTsuperstar

Technically yes you should let them know, and most lenders will compromise by adding 1% to your current rate then get you to switch to BTL at end of fixed term.
If you dont tell them, unlikely they'd find out but if anything happens to house, your repayments etc, then you would be on very dodgy ground.
How long left on the fixed?

Danstable

Thanks for the advice, keep it coming.

The fixed term ends in Feb 2007.

If they are allowed to up the interest rate mid term then I'd hope to be allowed to sod em and take my business elsewhere.....but I guess this isn't the case (unless I'm prepared to take the charges on the chin)?!

I won't be taking out another mortgage when I move, and I fully intend to change my insurance to cover the 'change of use', will the mortgage company have any chance of picking up on this change?

Also, I intend to be totally straight with the Tax man, and could do with advice on what expenses I can offset against tax.

God, they make it difficult don't they!

HGLTsuperstar

Danstable wrote:

Thanks for the advice, keep it coming.

The fixed term ends in Feb 2007.

If they are allowed to up the interest rate mid term then I'd hope to be allowed to sod em and take my business elsewhere.....but I guess this isn't the case (unless I'm prepared to take the charges on the chin)?!



God, they make it difficult don't they!

You have changed your side of the agreemnet, i.e. you took the mortgage to buy a home for you to live in. Of course, regardless of the BTL bit, you can walk from it at anytime but then your chin had better be stuck out ready to take on the charges!

With less than a year to go, calculate the charges for walking now versus 10 months at a higher rate, but even better talk to them first to see what they offer!

Danstable

Once again, thanks for your help.

What advice if any do you have in relation to simply not informing them about my change of circumstances? What are the likely repercussions if they were to find out?

Ian_W

The reason they may charge more, some only charge an admin fee I think, is because there is a higher risk to them than with a residential situation. You have a tenancy agreement with the occupant so if you don't pay your mortgage A&L won't be able to repo the property as easily or quickly as if you were living there.

The chances of them finding out aren't high but they will still be writing to you at that address so it is possible. If they do you're well and truely in breach of your contract with them. Read to T&C's as to what they can do if you breach it. :eek:

The interest you pay on your mortgage [not capital repayments] is tax deductable so why not be straight? Other deductable items are agents fees, maintenance items, gas checks, repairs. Pretty much any running costs connected with the business of letting.

Danstable

Thanks Ian.

My Tenants are friends of mine whome I have lived with in the past and trust implicitly (although they will be on a contract). Therefore, all post will be forwarded to me.

I have read that loans taken out to improve the property are not tax deductable. I am planning to renew the kitchen and to be frank, this will have to be done if I am to rent out the property, this will be financed with a personal loan. If I take out this loan before I begin renting out then can I claim it is not an improvement but a necessity?

Also, I guess it is just the interest element that is potentially tax deductable?

HelpWhereIcan

Danstable wrote:

I won't be taking out another mortgage when I move, and I fully intend to change my insurance to cover the 'change of use', will the mortgage company have any chance of picking up on this change?

Remember that, in most cases, the lender is named as an interested party on the insurance policy and most insurance companies will notify the lender of a policy cancellation with some advising ammendments. The lender would then ask to see a new policy schedule to prove it is insured.

Danstable wrote:

God, they make it difficult don't they!

A lender would argue that they have to charge an additional rate to reflect the fact that the risk to them is higher. I do not want to get into a lengthy description/debate about the workings of the money markets, but generally speaking a lender's arrears rate helps dictate the rate at which they can borrow money, and therefore the deals they can make available to customers.

The lender would also argue that, in a personal financial disaster, you are more likely to allow a property you rent out to be repossessed than the house you actually live in.

Hate to be an apologist for lenders, but do agree that the lender should be able to charge a rate to reflect the risk that they take. After all, it could affect the rate I pay on my mortgage!!

Old_No.7

Actually, I did the same thing on a A&L mortgage and it was dead easy! They only require you to set up a Consent to Let, which is a formality. It costs GBP 125 for 3 years, so that's not too bad: all other terms remain as they are. They need a post address for you, and they want you to put in a few extra paragraphs into the contract, but the wording is in their Consent to Let letter. From then on you can remortgage with them, but you can't take out extra loans on the property. A&L do not do BTL mortgages, but this works very well, and if their deal is still the best come remortgage time, you can just stay with them and avoid any unnecessary hassle. We only just have it in place, but it was easy to arrange, and all went very smoothly, so no need to keep it from them for those 125 pounds.

Danstable

Once again, thanks for the advice.

"The lender would also argue that, in a personal financial disaster, you are more likely to allow a property you rent out to be repossessed than the house you actually live in."

I will not be taking out another mortgage and will be renting with friends, will this make any difference to their view?

"From then on you can remortgage with them, but you can't take out extra loans on the property. A&L do not do BTL mortgages, but this works very well, and if their deal is still the best come remortgage time, you can just stay with them and avoid any unnecessary hassle."

Do you mean by this that I can't remortgage with A&L and take equity out but come next Feb (the end of my fixed rate term) I will be free to go elsewhere?

Great advice, my mind is being put at ease bit by bit.

Old_No.7

Hi there, on the "From then on you can remortgage with them, but you can't take out extra loans on the property. A&L do not do BTL mortgages, but this works very well, and if their deal is still the best come remortgage time, you can just stay with them and avoid any unnecessary hassle."
As far as I know (we only switched to Consent to Let earlier this year and haven't had to remortgage yet) you can remortgage with A&L, but I'm not sure about equity release. Give them a call: the call centre people are very helpful and they all know about this. I don't think you have to identify yourself, if that's what you're worried about: just say it's a general query, something you're contemplating for the future. That's what we did a year ago when we first considered it.
Whether you're free to go elsewhere depends on the terms: if there's no extended tie-in than yes, you are. We decided to stay with A&L when we remortgaged a year ago as theirs was still one of the best deals, and it only cost £199 to stay on very much the same terms (discounted rate), no new survey needed, no income check etc. Easy peasy, no hassle at all: a phone call and a signature. (there was no equity release though) Will do it again if their deals remain good.