Please Help... Mortgages (2 x residential)

Kmac

Ive had so many mixed responses on this subject and im looking for someone to actually tell me the truth.

My situation....

I bought a house in 2007 with a lender (the month before the crash), its 100 % for £ 126, 000.00 on a 5 year fixed rate (6%). I have a year and a half to go until this term is up, and I move on to there variable rate. Its now valued at £ 110,000.00 with a get out of £ 5000.00 early repayment.

My mother and father in law are looking to clear some debts and offered looked at the idea of us all moving into one big house, as it helps us all out financially.

Stay with me here.... So I have managed to get a residential mortgage with me and the mother in laws names on it... £100,000.00 deposit from there sale and a £ 200,000.00 mortgage fixed for two years at a very good rate, there isnt an issue with the new mortgage, all payments are very reasonable and affordable, and they are aware of the fact that I currently have a mortgage.

Its my current mortgage (also residential) with a certain lender thats the problem, I cant sell, as i will have a £ 16,000.00 deficit plus the early repayment charge of £5,000.00 to pay, this is unfeasable..

My only option is rent it out, an independant financial advisor along with others who know people to do this said not to tell the lender as they wouldnt switch my mortgage to a BTL (because theres no equity within house)

If I was to do this, is it ilegal... I heard it was only against the financial regs, of course I would change my buildings insurance to a letting one... and I would sort gas and elec certs. I would also put all my years earnings / losses through the accountant I intend to employ for tax returns.

I could get £ 550 PCM for my rent and my mortgage is £ 660, leaving me with £110 deficit each month + taxes, which im fine with as Im only paying half the mortgage on the new property, basically it would put me in a lot more comfortable position financially and I would have a property still, which hopefully would rise in value.

I feel like im forced not to tell them as im in a sticky situation. so In conlusion my key questions are

1) would the tax man inform the lender ?
2) How does the tax work in my situation (effectively making a loss, but still keeping up repayments)
3) What would happen to me if I was caught ?

Im not trying to defraud anyone, Im trying to stay afloat and would apreciate any hard facts / advise people could give me. No I thinks or mabeys as thats all ive had up to now, and financial advisers Ive spoke to say the same "I wouldnt tell them if i where you". I know thousands of people do this, but i really want some new options as i will be forced to go down this route otherwise.

Kind regards Kmac

Cannon_Fodder

A sensible tenant will check if you have sought permission, anyway. Being empty will cost more than a £110 deficit.

https://forums.moneysavingexpert.com/discussion/1377883

Keep your finances seperate from the in-laws. Linking their poor credit history to yours, will only worsen your re-mortgage options. They can downsize to clear debts, if they have £100k equity.

You haven't mentioned your own income or debts, but assuming the £660 is not too painful, I'd lean towards ignoring your negative equity and overpaying your mortgage where possible.

00ec25

Kmac wrote: »

1) would the tax man inform the lender ?
2) How does the tax work in my situation (effectively making a loss, but still keeping up repayments)
3) What would happen to me if I was caught ?

Im not trying to defraud anyone,

1. HMRC will not inform the lender

2. you pay Income Tax on net profit so if you are not making a net profit you will not pay income tax. However you must notify HMRC that you have rental income, this can be as simple as a letter setting out your trading account, ie rent - mortage interest payment only (not the capital repayment element) - other costs incurred from being a (legal) LL (eg: safety certs, fees etc etc) = net profit/loss
you have 3 years from the date you exchange on the new house to sell it and be 100% exempt on CGT. If you sell after that you may have a CGT liability depending on how big a gain it makes and all the reliefs you can deduct

3. worst case: you would be guilty of mortgage fraud and might have the mortgage called in - highly unlikely though.
More meaningfully has no one mentioned getting consent to let from your existing lender. This is not a BTL mortgage, it depends on the lender but will often involve you paying a one off fee to them for the "consent" which will, as Cannon Fodder says, enable you to prove to a tenant that you have permission. Be aware that some lenders may attach a time limit to how long the consent is for, as it is mainly for people in your situation, ie looking to sell but not immediately and are thus looking to rent it out in the meantime. Consent to let means you keep your existing mortgage terms.

clutton_2

""A sensible tenant will check if you have sought permission,""

this is unlikely .... as a LL i have from time to time used letting agents to find tenants and then i self manage.... When contacting letting agents, (even ARLA registered good agents) i have only EVER been asked to complete their form which says do you have permission from yoru lender, do you have GASSAFE gas cert, are the electrics sound, do you have insurance.... i have never ever been asked to produce copies of these documents (except Gas Cert obviously to the tenant)

I do not believe there is any legal way (in advance of taking on a tenancy) that any tenant can legitimately find out if a LL has lied about permissoin to let. A tenant will know only when the Court docs arrive if the LL is to be repossessed.

I believe there are many LLs who dont have permission to let. Lenders dont give a toss as long as their mortgage is paid regularly.... if may be a breach of the Mortgage Contract.. but i have never ever heard of any lender prosecuting a LL for not obtaining permission.

I think there are folks on this site who get utterly hysterical about permission to let....

It is my view that EVEN if the Lender discovered, they are much more likely to switch you to a BTL higher interest rate mortgage product rather than repossess you.

if i was in your position i would certainly consider letting without it - if it was the only alternative.

Having said all that... getting a financial association with someone with poor credit history is a very daft thing to do........ the consequences last for years sometimes....

neverdespairgirl

Have you thought about how much this is really going to cost?

there's the mortgage to pay, landlord's insurance (more than normal insurance), fees for finding tenants, gas and electricity checks, maintance, either running the flat yourself, or paying someone to do it, and the potential nightmare of evicting tenants who don't pay and trash the place to boot.

Henry_P_Chester

neverdespairgirl wrote: »

Have you thought about how much this is really going to cost?

there's the mortgage to pay, landlord's insurance (more than normal insurance), fees for finding tenants, gas and electricity checks, maintance, either running the flat yourself, or paying someone to do it, and the potential nightmare of evicting tenants who don't pay and trash the place to boot.

Also void periods, every month it is empty will cost you 660 per month. Can you afford this?