Bank refuses BTL mortgage because tenant is current owner

drjones69

Afternoon all,
Quick query which I'm hoping some knowledgable folks on here can help me with.

I'm just at the start of the process of buying my Mum's house (as she is now longer able to keep with her mortgage payments on account of an unexpected redundancy) with a plan to rent it back to her at a rate she can afford.

I've, thus far, spoken with RBS and explained the situation to them - explaining that the sale price and my deposit being around 30% - all good so far.

However, I've just had a call back from them telling me that their underwriters will refuse the mortgage on account that the intended tenant (my mum) is the vendor - their explanation being that after the sale the tenant will have additional rights to the property (on account of being the previous owner and current occupant) - tbh this is not something I'd envisaged being a problem, but am now concerned that this response will be duplicated by other banks I contact. My question is therefore - does this sound like a normal practice, and is anyone aware of (preferably from direct experience) routes around it?

To clarify, all other aspects of the application (deposit size, credit check etc) went well.

Regards,
Ryan

puddy

why did you tell them who the tenant was, did they ask?

TonyMMM

A lot of lenders have a problem with having family as tenants, usually on the liklehood of being able to get possession if you don't pay the mortgage...e.g. are you really likley to evict her if she doesn't/can't pay ? Will you have a proper AST in force ? and if you are planning to rent under the market rate ..will the rent cover the required % for the lender ?

kingstreet

There are always issues when the property is to be rented to a family member. BTLs aren't regulated. When it's to be rented to a family member, they are, so the lender will be more cautious in how it approaches the transaction.

I'd talk to a whole of market or independent broker about this case, certainly before you complete any forms involving credit checks.

00ec25

Assuming you are not (and will not in future) be living with mum, are you aware of the tax implications of what you are doing?

You will be laible for capital gains tax on the difference in the value between what you paid to buy it and what you eventually sell it for - but this should not, IMHO, in any way, shape or form stop you from doing what you propose, I applaud your support.

puddy

also, if mother cant afford the mortgage now, then how will she afford the rent

if the idea is to claim hb then that might be seen as a contrived tenancy (one set up to take advantage of benefits)

drjones69

puddy:
Came out whilst explaining the situation to them. TBH it's not something I ever foresaw as a problem so didn't mask the fact. I did ask the advisor I spoke to "What's to stop me arranging a mortgage without declaring that?", was told that whilst it would progress further, I would most likely have to disclose this when the bank had a valuation done and enquired as to whether I had tenants lined up.

GMS

The lender is looking upon this as a 'sale and rent back' transaction which they will not allow.

Aside from the renting to family issue which will also cause problems with many, you will encounter many rejections with this.

Before you do any more applications speak to the lenders and make sure they are happy with it, or much easier for you speak to a broker.

drjones69

puddy wrote: »

also, if mother cant afford the mortgage now, then how will she afford the rent

if the idea is to claim hb then that might be seen as a contrived tenancy (one set up to take advantage of benefits)

Mortgage is high, and on account of her age cannot be extended in term (mortage is > £700), rental to be charge is 330-350 (still finalising depending on what I include in it). It's about a 7% yield, not outstanding but tbh I'm more interested in not making a loss and keeping my mum in her home.

I don't mean to be rude, but please keep replies tight on topic - I've posted a similar messages in the past (whilst researching this option) and quickly had replies go down this route without answering the core questions - to be clear, I can afford the mortgage and my mum can afford the rent (and yes I have checked and am not relying on family trust).

puddy

drjones69 wrote: »

puddy:
Came out whilst explaining the situation to them. TBH it's not something I ever foresaw as a problem so didn't mask the fact. I did ask the advisor I spoke to "What's to stop me arranging a mortgage without declaring that?", was told that whilst it would progress further, I would most likely have to disclose this when the bank had a valuation done and enquired as to whether I had tenants lined up.

well then the answer is no i dont have tenants lined up, im joining x agency who have assured me that they have people waiting for this type of property at x price

puddy

drjones69 wrote: »

Mortgage is high, and on account of her age cannot be extended in term (mortage is > £700), rental to be charge is 330-350 (still finalising depending on what I include in it). It's about a 7% yield, not outstanding but tbh I'm more interested in not making a loss and keeping my mum in her home.

I don't mean to be rude, but please keep replies tight on topic - I've posted a similar messages in the past (whilst researching this option) and quickly had replies go down this route without answering the core questions - to be clear, I can afford the mortgage and my mum can afford the rent (and yes I have checked and am not relying on family trust).

ok sorry but with something like this there are also lots of issues for you to consider, you wouldnt want to find that she couldnt afford it and then face evicting your own parent, so i thought i should mention it