Buy to Let - moving on from fixed rate

nzmegs

Our fixed rate is due to end in January and currently we will be better off on the new variable rate when it starts.

problem is I have just called regarding getting a new deal and have been told that because our rent only just covers the mortgage the only way we can get a better deal is if we pay a lump sum.

the rent is supposed to be 125% of the mortgaged sum. fair enough and in usual circumstances it would be. But we have my MIL living in the property and she pays the mortgage only. If someone else was living there then they would pay twice as much.

Birmingham Midshires tell me that they can only take the amount that she pays as the rental income, not the amount it is actually worth.

If I had told them that she paid £300 more then all would be fine, but being honest has backfired.it seems wrong as i make no income from the property. Surely it should be based on the figure which could be achieved, not what is actually received.

the mortgage has always been paid on time and in full. for the last 7 years.

Should I look around for another mortgage? I am self employed and only work part time and get around £15,000 a year. The mortgage is in my name alone, not my husbands.

Should i call them back and tell them i have put up the rent?

Are there other products out there for this type of situation. help...

TonyMMM

Do you have a proper tenancy agreement in place with your MiL ?

A lot of lenders get very twitchy with family tenancies, because they believe (probably correctly in most cases) that if the rent isn't paid you may not be very keen to take eviction proceedings etc. and therefore they see the risk as much greater.

Go onto the variable rate, and use the difference to overpay ?

nzmegs

No, there is no proper tenancy agreement. I could get one of course if it would help. it has been working fine for 7 years and when she retires we are planning on selling the house and she will move in with us or into somewhere cheaper. it is a well organised thing and she knows exactly what her responsibilities are and mine. the mortgage will be paid whether she pays it or not.

you might be right that overpaying the mortgage will be a good idea or at least putting that money aside to cover for higher rates in the future.

GavB79

Why should it be based on what you could achieve, rather than what you are achieving? I don't understand your logic here. What you are receiving is what you have, and what you can pay the mortgage from. What you might achieve is irrelevant, as you are not getting it? I am confused.

nzmegs

My logic is that the bank is rightly concerned that the mortgage will not be paid if the rates increase significantly and they need to know that the total amount of rent i can charge is more than the mortgage. As things stand, the rent I am charging is 50% less than what i could charge. But isn't that my prerogative? All the bank needs to know is that the market rate covers the mortgsge. What I actually charge is my own business.

Thrugelmir

nzmegs wrote: »

and she pays the mortgage only.

Is the mortgage on a repayment or interest only basis?

nzmegs

Currently interest only, but the mortgage is for around 60% of the value of the home. So plenty of capital.

Jonbvn

nzmegs wrote: »

Surely it should be based on the figure which could be achieved, not what is actually received.

Of course not. The lender is interested in real world money, not some notional rental value.

From what you have posted, self-employed, no tenancy agreement and renting to relative, you are seen as a high risk borrower. I think you may struggle to find a suitable alternative.

Engeroosi

Get a tenancy agreement with the rent at market rate, still charge what you charge, the TA will provide bank with the much needed 125% of mortgage payment, it's a win win!!!

Verbatim

Engeroosi wrote: »

Get a tenancy agreement with the rent at market rate, still charge what you charge, the TA will provide bank with the much needed 125% of mortgage payment, it's a win win!!!

Or you could call it fraud!

Engeroosi

yeah some could say that!!