Clear Mortgage or not Dilema??

Pin_Head

Hi

I have £30K on my mortgage left. I will be renting my property out for the next year or so at £700pcm. I am on a SVR of 2.5% (?) with minimal fees (£100) to clear. The interest on this is about £70 per month and decreasing.

Should I clear or not??

My £30K is in Premium bonds.

I may buy another property with other savings as well in the next 6-9mths as fixed mortgage deals are very good at the minute.

Any tips

thanks

pin

wine_night

Pin_Head wrote: »

Hi

I have £30K on my mortgage left. I will be renting my property out for the next year or so at £700pcm. I am on a SVR of 2.5% (?) with minimal fees (£100) to clear. The interest on this is about £70 per month and decreasing.

Should I clear or not??

My £30K is in Premium bonds.

I may buy another property with other savings as well in the next 6-9mths as fixed mortgage deals are very good at the minute.

Any tips

thanks

pin

There are a few things to consider here. I assume that you currently have a residential mortgage on your intended BTL property? In that case would you obtain consent to let from your lender or switch to a BTL mortgage?

If your lender will allow you to go onto consent to let at the current rate of 2.5% this looks like a very good deal (look at the current BTL rates that lenders are offering and compare what you are paying now). Effectively, a loan with an interest rate of 2.5% looks very cheap to me.

You can also offset the interest you pay on the mortgage against the tax payable on your rental income.

If you can let your property out with the full consent of the lender and only pay 2.5% on your mortgage then I would consider continuing keeping the mortgage on. You are in a fortunate cash rich position to have the flexibility to redeem if your mortgage interest rate starts shooting up.

I hope that helps.

TrickyDicky101

Is it really advisable to notify the lender that you are letting the place out? You would need proper insurance in place but I'm not sure it is worth risking the current rate by informing the lender. OP would not be breaking the law by not informing the lender - worst that could happen would be lender finding out, slapping a higher rate of interest on the mortgage and then OP paying mortgage off with effective cash savings.

ognum

TrickyDicky101 wrote: »

Is it really advisable to notify the lender that you are letting the place out? You would need proper insurance in place but I'm not sure it is worth risking the current rate by informing the lender. OP would not be breaking the law by not informing the lender - worst that could happen would be lender finding out, slapping a higher rate of interest on the mortgage and then OP paying mortgage off with effective cash savings.

I am sorry but I think this is very dangerous

A residential mortgage is used for a property which is used principally as your main residence - it's not used as your principal mortgage, then you are breaching the lender's terms and condition, in particular it leaves the property open to be "squatted" in "legally", putting the mortgage company in a precarious position - hence the reason why they ask if anyone over the age of 17 will be living in the property, because if they didn't ask and they wanted to evict the mortgagees, the occupiers could be allowed to stay, which could cause all sorts of problems.
BTL mortgages, along with second charges, are not regulated mortgage contracts and are also, believe it ot not, not regulated by the FSA, although they are "interested" in them!
If you didn't tell them then unfortunately you would be in breach of your mortgage contract and your buildings and contents insurance will be unsuitable, if not actually invalid.
Many people do this and get away with it, but it's a high risk strategy
You could lose your whole house if there is a fire and it is tenanted and incorrectly insured
Is it worth the risk for £30K

TrickyDicky101

ognum wrote: »

... it is tenanted and incorrectly insured

I already stated the correct insurance would be required. If (and it may well be a very big, unlikely if) the insurance T&Cs don't require compliance with mortgage lender's T&Cs then where is the risk to the OP?

Yorkie1

I think it is Experian - or certainly one of the credit ref agencies - that has started recently a new database for lenders and others to access. This would show that OP's main address has moved, and his lender could easily find out that he is therefore breaching his mortgage T&Cs.

If the lender requires an annual copy of the buildings insurance cover, the lender will notice that the type of insurance has changed from residential to LL.

Worst case scenario is not an extra few % on the interest rate, but that the mortgage is called back in and that the OP has to find that money immediately. I suspect that this would also be recorded on the National Hunter database, making it harder for the OP to obtain a mortgage or other credit in the future.

Further, even if the correct insurance is in place, the tenant's protection of their tenancy would be limited. The lender is not bound by it if repossession occurs. Perhaps not an immediate concern of the OP but it needs to be mentioned for the sake of anyone reading this thread. The tenant is reliant on the court allowing them a maximum of 2 months to find a new place to live.

All the mortgage correspondence will continue to be sent to the property; you can only have a PO redirection for a certain length of time. After that, you are reliant on the tenant to pass the documents on without a) reading them, b) delay, or c) simply binning them.

ic

Isn't it essentially fraud to not inform your mortgage lender? As to the original question - ultimately the recommendation is always to have six months salary in the bank to cover you for whatever may occur, but also you'll want some extra to cover problems that could occur from the rental - say the need for a new boiler, problems in the bathroom.

dimbo61

I would start by asking your lender for "consent to let" and see what they say!
If they are happy to allow you "consent to let" for say 3 years!!!! ( this is important for capital gains tax) then I would rent out the place after
1 getting all the work done that is required by LAW ( gas safety chcek, EPC, fire risk assessment ETC)
2 inform the TAX man and get an accountant
3 decide if you want to do the letting through a GOOD letting agent ARLA etc
For me I would want to clear the mortgage within the 3 year consent to let period and sell up before 3 years are up ( think CGT)