Need some advice on an awkward mortgage scenario

midnightblue_2

Hi,
Hopefully someone will have an idea about the options available to me with the following scenario.

I currently own a property worth circa 340k, and a mortgage of 125k.

I have just found an investment property that I CANNOT miss out on, that is 300k. This is a 6 bed house that has been split in to two by the current owner, who has now had to go in to an old peoples home. The woman lived in one side, and her life long friends live in the other side. This property is in my mind a goldmine, as it also has a building plot on the back, which will be worth 70-100k.

Now here is the problem. I have only just put my house on the market, the estate agent thinks it will be no problem shifting the property fast, but I need to get the ball rolling on this other house before someone comes in with cold cash and I miss out.

The plan would be that my family and myself would live and renovate one side, whilst obtaining income from the other half of the house.

I have an annual income of circa 50k, so a lender will not allow me a 300k mortgage without releasing the money from my current property. I luckily have a generous father who has a good income and no mortgage has offered to guarantor if it will help obtain a mortgage to span the time until mine is sold.

The tenants in the other half of the house are a 85+ yr old couple that have lived there for 30 years under a "friendly agreement" with the seller... Even the estate agents don't know where I legally stand with these tenants... and obviously lenders are going to be twitchy if these people have squatters rights in the house!

Firstly, does anyone have an idea what rights these people have if there has been no agreement made up (and can we get a solicitor to ask them to sign to confirm that they have no financial holding in the property?)

Secondly, With my father being willing to guarantor this, can I just get a standard personal mortgage when part of the property is rented out?

Thirdly, the third option explained was that my father could get a 150k mortgage, and I could get a 150k mortgage to combine to get the 300k, and when my property sells, I could just pay off his 150k....

Sorry if this has completely confused you, but it really is a difficult scenario to try and explain.

Any help will be greatly appreciated!

Tomthumb

midnightblue wrote:

The tenants in the other half of the house are a 85+ yr old couple that have lived there for 30 years under a "friendly agreement" with the seller... Even the estate agents don't know where I legally stand with these tenants... and obviously lenders are going to be twitchy if these people have squatters rights in the house!

Firstly, does anyone have an idea what rights these people have if there has been no agreement made up (and can we get a solicitor to ask them to sign to confirm that they have no financial holding in the property?)d get a 150k mortgage to combine to get the 300k, and when my property sells, I could just pay off his 150k....

Awww, are you going to boot them out??

I know that's no help to your original question, it just seems really sad.

midnightblue_2

I will actually be keeping them on, as they seem a lovely couple, but from a lender point of view... but i would be making it a formal tenancy agreement rather than a "friends" agreement!

bootman

:eek: Thats an awful lot of mortgage to have, What if your house does not sell so quickly?

There are an awful lot of ifs and buts and it sounds like your going to have to speak to the elderly couple to find out exactly what the arrangement made was. They could turn nasty even at 85!

magyar

It depends what you mean by "rights". If they have no contract, rental agreement or lease, then once the property transfers to you they have no right of abode. Hence if you want to ask them to sign a rental agreement then you'll be fine.

There's no real thing as "squatter's rights" - that just means that if people get into a house without forcing entry then you need a court order to evict them.

I wouldn't expect an estate agent to know where you stand on this - you need a good property lawyer. The deeds should show who owns the property, so you shouldn't need them to claim they don't own it.

midnightblue_2

Just an update, it seems we might be going ahead with a residential mortage of 175, and a Buy to let mortgage of 125... and as far as the rights are concerned, I agree, after reading the correct section of the UK property law, it appears squatters rights only take affect with un-aknowledged and un-paid residency, which this isn't.... It's just the fact that it isn't classed as "vacant possesion" my mortgage advisor says the lenders will be twitchy about....
I now need to find a good online resource of how to draw up a good shorthold tenancy agreement, and hopefully get them to sign it, and aknowledge that their rent (which was previously "mates rates") will be raised..
I think the seller is worried that she will get stung for capitol gains if she sells seperately, but surely, she would get hit for this either way of sale?
Thanks for your comments so far, keep them coming :beer:

magyar

Yeah, I can understand the lenders being twitchy about lack of vacant posession, but if you're doing it as a buy-to-let I can't see it being an issue.

If the two properties are separated, i.e. they have separate deeds, then there's no way the seller can avoid CGT - well not without a very good accountant anyway.

If you just Google "Shorthold Tenancy Agreement" you get dozens of suitable answers. I still might get this checked by a lawyer though, given your situation.

midnightblue_2

Even though the house is split in to two currently, and has different numbers to either door, it is still one title deeds.... so this really does make it a sticky area for CGT... she might get away with it if I purchase the whole thing as one, but may get charged if she sells them to me seperately... She is talking to a solicitor on tuesday... and it is a horrible feeling that the money bit is pretty much sorted, but until I get the acceptance of offer, and a sold STC sign up... I will be having sleepless nights over the weekend... panicking that someone will come in with straight cash buy over the weekend and get it, then I would be very :mad: (and probably cry)

Conrad

Midnight this is the kind of case I get involved with.

Its very complex on many fronts, some which you have'nt mentioned above.

Her Solicitor will advise her to sell as the one residence and avoid CGT, in all probability.
The Guarantor angle cant apply in this case I wouldnt have thought.


There are a number of ways to approach this case:

The most simple from what you have said, would be to raise some against your esisting property and some against your inlaws. Buy the property as a B2L or investment (note these are 2 different things). Perhaps go for a deal without Early Reapayment Charges so you can refinance once you own (subject to refinancing criteria).

Im guessing the tenants may have some kind of sitting tenants rights?

IT MAY HELP YOU IN YOUR ENDEAVOUR TO THINK HOW A LENDER THINKS, SO HERE GOES:

As the lender your key requirement is not equity but AN EASY EXIT ROUTE.
If your buyer cant pay the debt, how easy will it be to resell the property?
Lenders hate a 'restricted marketplace', so tend not to lend where a property has rights issues.

Good luck

A_Nice_Englishman

Employ a good property lawyer to check what rights the tenants have. It wouldn't be very good to find out that they pay a peppercorn rent and you couldn't raise it to market rates or evict them.

Also, does the land at the back have planning permission?

And finally, here is my usual response to potential BTL-ers

Starting a property rental business is like starting up any other business. You need a business plan.

Do void periods, bad debts, repairs, redecoration, legal fees,insurance, agents fees, costs of evicting bad tenants, rises in interest rates to, say, 8% and possible falls in property values figure in your business plan?

Are you familiar with the 50 Acts of Parliament and 70 sets of regulations which may apply? Did you know you can be held responsible for the anti-social behaviour of your tenants?


Then you need to look at the taxation side. Any profit you make will be taxed at your highest rate of income tax and if you make a profit when you sell you will have to pay Capital Gains Tax. though there may be reliefs.

I decided I would be better off keeping the money in the bank. You need to decide whether or not to borrow the money. If you feel that property is still a good investment you may be better off buying a more expensive house to live in yourself. At least that would avoid the CGT problem.