Rent a Room - Refused by Bank

welshandrews

I've had a mate living in my spare room for a couple of years now, and recently changed banks so had to speak to the mortgage company. Whilst I was on the phone i asked them if they needed any paperwork sorting for my lodger, which they said they'd send out.

this morning i've had a letter from them refusing my application to rent a room. They say the reason is that they normally require a LTV rate of 75%, and i don't have this. I'm around 90-95% i would guess.

Anyone been in this boat? I feel a couple of options - speak to the bank and smile nicely asking them to allow me to rent out my room or say nothing and continue as I have for the last couple of years...if the first option is negative though, the second option is less likely to work as they'll probably run some checks and see that there are two names on the electoral register here and so on!!

thoughts would be most welcome!!

BitterAndTwisted

That LTV business normally suggests a Buy-To-Let mortgage, rather than a residential one with a lodger. I think there have been some wires crossed somehow.

No-one with a residential mortgage needs the lender's approval to have a lodger, although the rent would not be taken into consideration where your declared income in concerned.

ETA: Has the word "tenant" ever been used when in discussion with the bank rather than "lodger"?

welshandrews

it took a while to make the guy on the phone understand that i was on about rent a room, but the letter is quite clear that this is what they're on about. Shelter website has the following:

Most mortgage agreements allow you to rent out a room in your home but you usually need permission from your lender. Check your mortgage agreement to see what it says.
If it says you need permission, it's important to get this before anyone moves in. If you don't, you could be breaking your agreement and your lender may be able to take you to court.

I've not used the word tenant or lodger with the bank as far as I'm aware, i talked purely about the paper work for renting the room out to someone. i was clear with them that there was already someone in there too, so it's all a bit frustrating.

BitterAndTwisted

The people at the other end have misunderstood the exact circumstances, I'm certain of it

Doozergirl

I agree with Bitter & Twisted that they've construed this as you wanting a BTL mortgage. You get proper monkeys on the end of a phone sometimes.

I personally wouldn't say anything more about it. I don't see how an informal lodger agreement, where they have no security of tenure allows a mortgage company to dictate. If there is a proper tenancy agreement in place, then of course they'd be very interested, but as it stands with a lodger, if they repossess, the lodger is out on their ear with you. It's not a barrier to repossession like it would be with BTL and therefore they want higher deposits to protect their 'investment'. If youmoved a partner in, it would be none of their business either.

welshandrews

the letter has 4 criteria that must be met for them to agree to let me rent a room:
LTV of 75% or less
one lodger only
lodger has his/her own room
No formal tenancy agreement in place
which suggests they really do understand that its rent a room. All a bit annoying though, like you I can't see what it's got to do with them!

It does say that I'm above their normal ltv criteria. i wonder if the word suggests there's flex though. but I'm hesitant to phone them and start any investigations off....

BitterAndTwisted

Who is this lender?

welshandrews

NRAM, the bank formally known as Northern Rock...

JQ.

In all honesty, i'd probably just tell them you're not going to bother, but continue to rent the room. I've had lodgers in the past and not told the mortgage company. Probably not the best legal advice, but in reality how on earth can they check and what adverse impact will it have on the lender -
You're still resident in the property, so no insurance issues
The lodger has very limited legal rights unlike a tenant
and they lent based on your income alone, so you must be able to afford the payments

Just make sure everything stays in your name.

G_M

I agree with the advice above. NR's position on this is ridiculous.

More important is your insurance which may be invalidated by the presence of a lodger. They DO need to give consent. Given your experience with NR I hesitate to say this is usually just a formality, but you really should check.

I hope you don't insure via NR........

welshandrews

the insurer isn't NRAM, and they are aware that there's a lodger here, and they were happy with that, there was a form he had to sign to send back to them to satisfy them.

Frankly,if interest rates shoot up they'll be glad that the lodger means I can keep the repayments going, so unless everything starts going really bad i think keeping schtum is the best option.

thanks for all the thoughts from everyone!