Interest-only mortgage crisis looms report

missk_ensington

I think you'll find most BTL properties are being rented on a domestic mortgage, by people who have been able to get a second mortgage due to the increased value in their main residence.

This annoys me because my Mum is a developer and rents many properties, but she's on a commercial loan at 7.5%, and thus needs to charge more to cover her greater overheads. These doing it on domestics can offer lower rents and put the cash in their back pocket.

As for the main point, I guess the reasoning is that your house will be worth a lot more in 25 years?!? Or perhaps they think you will buy/sell/buy sell.... and make a wad on each one, which is a bulk sum to pay off. This is my intention (though a simplified version) as to me there doesn't seem a lot of point in taking another £120 a month out of my income, when its just a p1ss in the ocean on a long term scale.

People do definately need to get an idea in place, and certainly not pile bad debts onto a strethced out IO mortgage!

lisyloo

by people who have been able to get a second mortgage due to the increased value in their main residence.

I don't believe this is the case.
BTL mortgages are not given on the basis of equity in the family home or the personal income of the individuals taking the mortgage.
They are based on the rental income expected from a sounds business plan (e.g. with voids included etc.).

There is a difference for a lender between lending to a commercial developer and individuals.
The increased rate your mum has to pay simply reflects the increased risk, it's a simple as that.

If your mums business started going down the tubes for some reason she could not personally subsidise it.
Someone with a BTL property can personally subsidise it (for a while at least) so I guess lenders see it as less risk.

I don't think it's a personal attack on her, it's simply the perceived risks from the lenders point of view.

missk_ensington

lisyloo- That's on the presumption BTL Landlords are declaring that its a rental property. I seem to find most are not and they have got a mortgage as thought THEY are living in it, so the lender doesn;t even know its tenanted!

It doesn't bother my mum too much as she tends to focus on commercial property, and businesses but it's not fair that cowboy Landlords have jumped on the bandwaggon and try to get cash without declaring it, and keeping it on a normal domestic mortgage! My mum's company is registered etc, so she finances her projects through the business and thus has to get a business loan at a higher rate. She's doing very well out of the business, but it isn't helped by Landlord offering rentals for cash, at lower rathes because they have a mortgage at 4.5% not 7.5% and can afford to let it go cheaper.

At the moment it seems everyone is a Landlord, everyone I know has a rental property! They're all 40 ish and have no mortgage on a £200k house that they paid £55k for years and years ago, and have got another mortgage to enable them to buy. If that makes sense!

lisyloo

I agree with you.
It's certainly not fair on decent and honest people having to compete with fraudsters. That's true in many walks of life e.g. those of us who pay tax are also subsidising fraudsters.

One of two of those landlords might get into trouble if the tenant burns the house down and they find their insurance doesn't pay out because they obtained it fradulently.

Good on your mum for competing on an honest basis.

Although it sounds like she wouldn't want to benefit from fraud she has probably benefitted indirectly from all those BTLers pushing up prices.

missk_ensington

Lisyloo - My mum needs to declare everything because she has to be showing a profit to enable her to borrow. There's no point in her pretending the business is making a loss to avoid tax, cos then the bank manager will be like 'You ain't borrowing for this restaurant cos you're making a loss!'.

Hope Inland Rev catch up with these Landlords that are slipping £500-800 in their back pocket each month. I rented one and we had no contract, had to pay in cash.... it was all ok until my partner left and I couldn't claim HB cos I had no contract! After I left the proprty I phoned Council Tax from my new address to tell them that Im exempt and to transfer my exemption to my new house... anyway, they asked me if my previous property was rented or owned. I said rented, she asked who the Landlord was, so I said I didn't know (didn't was someones £2,000 tax bill on my conscience!) and they said is he called '

---

' (which he is).

Why would they be delving this information? I was wondering if the left hand might be (finally!) talking to the right hand in government offices!!

lowis

i will have (hopefully) an interest only mortgage but i intend to overpay each month (i am allowed to overpay up to £500 a month if i wish). i chose this mortgage because i could not quite afford repayment. it's the best option for me at the moment.

lisyloo

I was wondering if the left hand might be (finally!) talking to the right hand in government offices!!

If he doesn't know where you now live, then why not report him anonymously to the Inland Revenue.

lisyloo

i chose this mortgage because i could not quite afford repayment.

So what is your long-term plan?
Are you in a career where you expect big pay rises so you can pay back more later? or are your simply going to take more than 25 years to pay it back?

it's the best option for me at the moment.

Just curious, but could you have rented somewhere? or share somewhere or live with parents or friends?

Just curious as I am always a bit worried when people take on more than they can afford (and you said you couldn't quite afford the normal term).

missk_ensington

lisyloo - Kharma! You go doing things like that and can guarantee they'll come back and bite you on the !!!!!!! Think they'll catch him up anyway, and many other like him if someone just bothered to check the Council Tax and Lang Reg collude! They would catch thousands of tax cheats just by checking the person actually lives there!

missk_ensington

lisyloo- Lowis has probably got the same intention as me. I can overpay up to 25% of mortgage value in any one year (which obviously I never could) On repayment you HAVE to make the payment, IO you have a choice but if you wanted to, treat the mortgage as though it is repayment and make overpayments to reflect that, but if you have 1 month where your car packs in, or some tradgedy occurs, your safe cos you are only obliged to make IO payment.

I'm buying property, doing 12 months, renovate and sell... and with what I make on each one I hope to use to pay off the capital in my mortgage.