From Residential to BTL Mortgage.....

Christal_2

I have been reading this forum for some time and has learned lots of useful information, now I got a question of my own and wonder if any experienced money savers can show me some light.

Me and my hubby currently have a mortgage on the place we live, we are thinking of buying a 2nd property and move in, to make it our residence and rent the current one out to earn some rent to cover the mortgage payment. The existing mortgage is fixed till Sept 2008 with HSBC, couple of banks have told us that they can offer us a residential mortgage for the property we want to buy, and then we have to tell HSBC to convert the current mortgage into a BTL.
Question is:
1. By converting our existing mortgage to a BTL, will this incur the penalty charge as it's basically a change of product?
2. Also I understand to make it a BTL, HSBC requires at least 15% of the house value as deposit and our mortgage is about 90% of the house value so does that mean we have to find some money for the 5% difference as well?
3. I wouldn't mind doing so after the fix term finish cause by then there won't be any penalty and the house value will go up so I don't need to put down any money to make up the 15%, so can we just not tell HSBC and quietly wait for 2 years?( I know it's probably not the right thing to do, but think about the penalty and the payment....)
4. If we don't tell HSBC, is there anyway they can find out? and what the consequence will be?

It would be very nice if someone can give me some advice on this cause I'm really worried about what we should do and how.........

regularsaver1

You must tell HSBC. Find out their procedure - as they may just change it to consent to lease. - which would mean that when applying for a new mortgage this would show on your credit file as your current commitment, and you may have to show affordability for the 2 properties - this of course depends on the lenders procedures.

Also the new lender, might not take the rental income into consideration so be careful.

What I mean is Consent to Lease is different to Buy to Let. Consent to Lease is still a residential mortgage, but with the lenders permission and consent to let, rather than set up to let as such.

Have you found out the current market rental rate for your property?

of course you are better of speaking to a Broker on this on, on what can and can not be done

A_Nice_Englishman

When I rented out the house I used to live in I informed my lender (HBOS) and they didn't have a problem with me doing it at all. They did want a form signed. I don't have it to hand at the moment but it may well have been to do with 'consent to lease' as regularsaver1 mentions above.

I'd been there 10 years or so, the value was around twice the mortgage and the rent covered the interest 2.5 times. I don't know if things would have been different if the mortgage had been a higher proportion of the value and the rent only just covered (or was even less than) the interest though

regularsaver1

Do you still have the property that you rented "A Nice Englishman"?

A_Nice_Englishman

Yes I do, regularsaver1.

My tenants have just given notice so I am taking the opportunity to sell it though.

(Anybody want to buy a 2 bed semi in North Somerset?)

regularsaver1

ah I am one of the ones that grants the consent see - they are only for 3 years now, so was going to say to check its still valid.

Good luck with the sell though

A_Nice_Englishman

The mortgage was paid off so within three years of renting the property so no longer any of HBOS's business what I do with it

By the way, what criteria are used in granting or declining consent to lease?

regularsaver1

ah I see.

Well we are supposed to do it out of neccessity. not over 85%. You now have to change the interest rate to a specific consent to lease one, with a fee. It is granted for 3 years, have to reapply after that time. But after that time, they state that should go to commercial terms - as in BTL. Property must also be managed.

The only real one I have had to decline was when a customer was at 95% LTV and was already renting without permission. we do not do it above 85%

oh and we don't change the interest rate if the customer is forces

Can i ask you how the tax deductions was for you once you did not have a mortgage on the property?

A_Nice_Englishman

Thanks for that interesting info, regularsaver1.

AFAIR I was not charged a fee or higher interest rate (I'm not in the forces).

Once the mortgage was paid off the main things I claimed tax relief on were buildings insurance, letting agents' fees and repairs.

As the value of the property has risen the yield has fallen and I think the housing market is at or near its peak so I have decided to sell.

Christal_2

Thanks for the advice, Regularsaver1 and A nice Englishman.

Yes I have spoken to couple of banks about the affordbility, it shouldn't be a problem but we are struggling to find one can provide a better deal than Lloyds (5.99% fixed for 5 years!!!), because we have some other things going on..(not financial problem though, and really nothing can help on that)

Quick question: I understand from your post that the LTV should be below 85% for lender to be able to do the Consent to let, but at the moment with the old valuation on our property(the one got done when we bought the place), the LTV is just below 90%, so will HSBC have a problem to the the Consent to Let?

If they can do it will another valuation needs to be carried out to confirm the current value of the property now to have a more accurate LTV percentage? And what if it comes out still above 85%? Will we need to pay the difference as lump sum to get it done?

And last, being really curious here, what would happen if I don't tell HSBC (I know I know, this sound really sneaky, but god helps I'm really as curious as a cat!) Can they really find out about it??

regularsaver1

HSBC will let your know their criteria

They would state in their conditions what they could do - but if you do not tell them you are in breach of your conditions and most will say that they can repossess you. whether, it actually goes that far is another story

have you got the previous conditions leaflet/documents about authorised and unauthorised tenancies?