Risks (esp around letting without consent)

Squirrel1980

Hello, before I start I have read missmoneypenny's sticky about the risks on consent to let. What I am trying to ascertain is how likely the fall out from those risks are to happen.

Essentially I am a person who takes no risks. I go by the book or I cannot sleep at night.

Unfortunately, I am now in a position where I am forced to take some risk, no matter I do. So I am trying to weigh up all the potential risks and work out which one I feel most comfortable about.

In a nutshell I bought newly built a property 4 years ago when my local council was running an affordable housing scheme. This allowed me to buy my property at 80% of the market value. I still own 100% of it, however I am in a covenant whereby I must sell the property on the terms I bought it ie. to another person on the affordable housing scheme at 80% of the market value. If no-one on this list wants it within 6 weeks, I can then sell it on the open market for 100%.

I have lived happily in this property for 4 years.

In the last few years I have noticed that my out-goings are steadily increasing. Financially I was having to cut back on the nicer things in life, fair enough, cest la vie! In the last year, however, it was getting worse, and I was having to cut back on the basics and was even resorting to credit card when unexpected events like car breaking down occurred.

The credit crunch, which had near enough surpassed me until now, was clearly starting to rear it's ugly head.

So one day I decided to take some action before it got out of hand, I realised I had several options in order to get my finances back in check:

1. Sell the property and move in with parents
2. Get a lodger
3. Rent out the whole property and move in with parents
4. Leave property lying empty and move in with parents
5. Stay put and acrue more debt

1. Sell the property and move in with parents

A high risk option. I am in negative equity and would lose around 20k.

2. Get a lodger

Advertised for 6 months and had little interest. The spare room is very small.


3. Rent out the whole property and move in with parents

I had a chat with a financial advisor who said that, undoubtedly, renting out the entire flat would be the most lucrative option.

I have advertised it and have lots of interest. A very keen couple are literally ready and waiting to move in.

Unfortunately mortage company refused to give me consent to lease. Instead they want me to get a BTL deal which double my monthly payments.

The tenants are aware that this is what I'm waiting on and have said not to worry about it. They understand the risks and want to go ahead (its a nice property at a good price). Even my lettings agent said not to worry about it.

So letting without consent also carries some risk.

Or, alternatively, pay the higher fee and not make any money, again, risking more debt.

Or, shop around other mortage companies - I have done this and none are willing to lend to me because of the negative equity and the 80/20 deal I bought the house on (due to the restriction to sale)

4. Leave property lying empty and move in with parents

I have to admit that I have not fully looked into this one.

5. Stay put, cut back but almost certainly get more and more into debt as the years go by.

All the normal risks of getting into debt apply here.

So I guess I'm asking for opinions, not on the risk itself exactly, but the likelylood that those repercussions will actually happen.

I will ALWAYS pay my mortage, my property is only 4 years old and is in very good condition, it is constantly being maintained by the mangement company, I could even get seperate buildings insurance if that would reduce the risk.

Like I said, I am not the sort of person who takes risks normally. But I have to be realistic and measure up those risks because ultimately whatever I do will be risky in one way or another.

All opinions appreciated!

MentalMinnie

Tricky one. I rent a whole house from a friend, but she hasn't told the MC that shes done this. Techincally she still lives at the house as she on the council tax and her post is delivered to the house still, but it works for us cos she a friend.

sooz

Have you considered moving into the smaller room, & offering a lodger the larger room?

Since you've already asked your mortgage company, & they said no to consent to let, do you really think that they won't find out?

sonastin

I don't know the likelyhood to help with your question but another way of looking at it is comparing the best and worst case outcomes of each situation over 5, 10, 25 years etc. Worst case as I understand it is you lose the property entirely and have the debt of repossession hanging over you until that is cleared. Best is that you get mortgage paid off without getting caught. (in the meantime, economic conditions could change so you can go back to doing it by the book) If you stay there, worst case is (for example) £2k debt this year, £15k debt in 5 years time, debt as big as your mortgage if you can find the money, etc, and a miserable life in the meantime. Best case, you know you've done the right thing and if house prices pick up you can sell legitimately and move on or you get a pay rise to be able to afford it more comfortably and life gets back to normal.

As I see it, on the choice between living there or renting without consent either could lead to repossession and bankruptcy but (providing you can live with yourself with the knowledge that you're being naughty) renting it out would bring a better quality of life in the meantime. If you do it for as short a period as possible (i.e. move back in as soon as your finances permit or switch to BTL when you're in a position to do so) then there is even less chance of being caught.

Thrugelmir

The repercussions will happen if for any reason the matter of letting without consent comes to the fore. Ultimately business is conducted on a degree of trust. Once that trust is broken then there is no relationship. So your credit status would be black marked for all financial institutions to see.

hazyjo

I think you need to think about your own situation and how that can change.

Have you changed jobs, taken a lower salary, not had any pay rises, lost an income... why is it becoming less affordable?

Any chance of increasing the lending term a bit to get the payments down? Hate suggesting 'interest only', but maybe for a year if you're very good and don't blow the extra cash and maybe build a bit up again?

Change jobs, or get an extra one?

Give up something that drains your dosh - car, perhaps? Walk? Bike?

Good luck.

Jx

Squirrel1980

sooz wrote: »

Have you considered moving into the smaller room, & offering a lodger the larger room?

Since you've already asked your mortgage company, & they said no to consent to let, do you really think that they won't find out?

I've told them that I no longer want consent to let because they were going to levy a 1.5% penalty if I didnt confirm one way or another. They said they'd remove the request off of my account and that would be that.

I definitely see your point, I've effectively waved a red flag above my flat, and raised suspision. But with thousands of other customers, some of which are much 'bigger fish' than me with more pressing issues, will they realistically want to spend time and money trying to find out if I am renting, only to have to turf me out, repossess my house and end up being in negative equity?

You see, I know the risk is there... but I'm trying to establish the likelyhood that those risks will actually happen.

As it happens, i'm not renting it out.

Squirrel1980

sonastin wrote: »

I don't know the likelyhood to help with your question but another way of looking at it is comparing the best and worst case outcomes of each situation over 5, 10, 25 years etc. Worst case as I understand it is you lose the property entirely and have the debt of repossession hanging over you until that is cleared. Best is that you get mortgage paid off without getting caught. (in the meantime, economic conditions could change so you can go back to doing it by the book) If you stay there, worst case is (for example) £2k debt this year, £15k debt in 5 years time, debt as big as your mortgage if you can find the money, etc, and a miserable life in the meantime. Best case, you know you've done the right thing and if house prices pick up you can sell legitimately and move on or you get a pay rise to be able to afford it more comfortably and life gets back to normal.

As I see it, on the choice between living there or renting without consent either could lead to repossession and bankruptcy but (providing you can live with yourself with the knowledge that you're being naughty) renting it out would bring a better quality of life in the meantime. If you do it for as short a period as possible (i.e. move back in as soon as your finances permit or switch to BTL when you're in a position to do so) then there is even less chance of being caught.

Thankyou, this is a useful way of looking at it.

I really only intend to let the flat for a maximum of 2 years. With the amount I can save in that time I will be able to pay my mortage for at least a whole year just out of my savings. I will also be earning more by then (if all goes to plan career wise). Plus, I dont think I could viably live with my parents for more than 2 years without needing to kill them. This would be very high risk. Although the inheritance would be handy...

ognum

Squirrel1980 wrote: »

Thankyou, this is a useful way of looking at it.

I really only intend to let the flat for a maximum of 2 years. With the amount I can save in that time I will be able to pay my mortage for at least a whole year just out of my savings. I will also be earning more by then (if all goes to plan career wise). Plus, I dont think I could viably live with my parents for more than 2 years without needing to kill them. This would be very high risk. Although the inheritance would be handy...

You are attempting to get validation here for something you know is wrong

Of course everything might be fine BUT you invalidate your insurance so if the flat burns down/floods/subsides you have NOTHING

If your tenant has an accident they can deem to be your fault you have no personal liability insurance this could cost you a lot

If you lender finds out you will be blacklisted

These are just a few of the things that could happen and as you claim you like to sleep at night it would be silly to do this.

Try

Moving into the small room and rent out yours

Get a second job

Cut down on expenses

Or convert you mortgage correctly

It is people who behave like you are planning to that give lpeople letting property in the correct way a bad name!

Sorry to be harsh but think carefully!

franklee

You would also need permission from the affordable housing scheme and management co. They will find out as likely the neighbours will say if they object to the tenants in any way.

You can't afford to let out. How will you cope with voids, repairs, non paying tenants, legal fees should the worst happen, extra charges on your mortgage if they do find out etc.

Suggest you move into the small room and get a lodger into your larger room.

Werdnal

There is more to letting than mortgage consent. You will be running a business and becoming a landlord with all the legal and cost implications that entails. You are already struggling financially, so how will you support the repairs to the property, damage tenants cause and cover the mortgage if the rent dries up. Don't do it!