Lender's consent - buy to let

Ilovejenson

I am hoping someone has some advice as my husband and I are really fretting. Sorry this will be long....

By the end of 2010 I had lost both of my parents three months apart. However I was extremely lucky that they were brilliant with money and I inherited a six figure sum.

We were living in a two bedroom house that we were really cramped in so we decided that we would cash buy a bigger house and afterwards sell our mortgaged house with vacant possession.

We have had our house on the market for three months, had loads of viewers but no offers. We owe £106,000 on the mortgage and the agent said we would be prudent to price it to sell at £110,000. We were gutted about this as we paid £120,000 in 2005. We are keen to sell ASAP as we fear an interest rate rise in the future (tracker mortgage). Also, our aim has always been to be mortgage free. We both work in local govt and nothing is certain in the future regarding jobs.

We recently reduced to £105,000 for an open day and still nothing. I know this is less than we owe but I have £11,000 left from my inheritance.

So we are looking into renting it out. I phoned my lender HSBC today as they refuse to talk face to face with existing mortgage customers in branch. They said they would allow us to rent out the house for 12 months on our existing mortgage but if this continued beyond 12 months we would have to switch to a buy to let mortgage which means a higher interest rate and a 25% deposit. In 12 months we'll owe just under £103,000 and we won't have £26,000 to pay to the bank. I asked what happens if we can't get a buy to let mortgage and he said we would have to sell it and get whatever we can for it.

If we would have to sell it after 12 months anyway, we are better getting what we can now as I think the market will get worse.

Another alternative is leaving it empty and paying the mortgage as it is now but would HSBC be happy with this?

It has crossed our minds to let it without lender agreement which is a big no no I believe. I have read that in the worst case scenario they can seek possession on the grounds of fraud. However, surely this action would shoot themselves in the foot? They wouldn't get what we owe and at least now they are being repaid. We are good customers who are not relying on rental income to pay the mortgage and we have not missed one payment.

It just seems we can't afford to sell and can't afford to rent it out. The lenders seem completely unreasonable.

If we rent it out via an agent, do they generally require proof of consent?

Any advice or things we haven't thought of would be appreciated. We want to be mortgage free so we can save for home improvements in new house and holidays etc

Thanks

ryan86uk

*Deleted* *Deleted* *Deleted*

Thrugelmir

Ilovejenson wrote: »

If we rent it out via an agent, do they generally require proof of consent?

Tenants may well ask for evidence as well.

Without approval from your lender then insurance on your property will be invalid in the event of a claim.

Why not repay your mortgage. Then save the money until such as the property gets sold?

It does take time to sell property in the current market.

Senior_Paper_Monitor

One option ...

Raise an offset mortgage on your current property to pay off the original house mortgage (normally slightly more expensive than standard residential but cheaper than buy to let). Interest component allowed for tax allowance purposes against rent, as oare maintenance etc.

You are then mortage free on original house and can rent out as you wish. Ensure correct style insurance in place.

Stick to 6 month tenancies and continue to market - if you wish (if prices are right may be saleable to BTL investor).

If/when you receive capital from sale use to fully offset the new mortgage (except for a few pounds so you do not settle the mortgage and pay ERCs) until deal peroiod and ERCs ended.

You should also be able to excess of rent after costs to reduce mortage and/or build nestegg. Your current cash pile can also be used to offset (but remain available for use at any time)

Frankly you may also find it an attractive longterm option.

Certainly worth investigating.

Ilovejenson

Thrugelmir wrote: »

Why not repay your mortgage. Then save the money until such as the property gets sold?

I thought someone might say that....It's too late now!! We wanted to be mortgage free and we couldn't afford to repay the mortgage and buy somewhere of the size of our new house which is perfect for us. I also wanted to avoid the stress of being in a chain and houses always have sold quickly in the area our mortgaged house is in. I know we are stressing about this but we are so much happier with room to breathe and my 4 year old son can have space and friends around.

Ilovejenson

Senior_Paper_Monitor wrote: »

One option ...

Raise an offset mortgage on your current property to pay off the original house mortgage (normally slightly more expensive than standard residential but cheaper than buy to let). Interest component allowed for tax allowance purposes against rent, as oare maintenance etc.

You are then mortage free on original house and can rent out as you wish. Ensure correct style insurance in place.

Stick to 6 month tenancies and continue to market - if you wish (if prices are right may be saleable to BTL investor).

If/when you receive capital from sale use to fully offset the new mortgage (except for a few pounds so you do not settle the mortgage and pay ERCs) until deal peroiod and ERCs ended.

You should also be able to excess of rent after costs to reduce mortage and/or build nestegg. Your current cash pile can also be used to offset (but remain available for use at any time)

Frankly you may also find it an attractive longterm option.

Certainly worth investigating.

Thank you SPM. It took me a while to get my head around this but I think I understand. You'd think the bank would've suggested this. This is exactly the kind of thing I was looking for, a constructive idea :T

Senior_Paper_Monitor

No i wouldn't expect a bank to suggest this - in many cases they are not qualified to 'give advice'. They also may not have the correct product in their limited (own) product range.

You need a good broker who will look at all/most possible providers, select the most appropriate and guide you through the whole exercise.

Ilovejenson

We have decided to let out the house for the 12 months our lender allows, make the usual mortgage payments from our salary and make overpayments from rental income. We hope we can get the debt down to £96,000 in this time and sell for this if needs be. If we can't sell for that, we will borrow against our residential house as you suggest.

Our agent told us today to expect an offer on Monday but they think it'll be a low one. Say if we accept an offer £10,000 lower than we owe and we have fees of £3200, would we be able to borrow a small amount like £2200 against our residential property?

Thanks

Thrugelmir

Ilovejenson wrote: »

would we be able to borrow a small amount like £2200 against our residential property?

Thanks

Easier to obtain a personal loan.

Being mortgage free shouldn't be an issue.

go_cat

Surely a low offer is better than nothing, take the hit And you can move on with your life, the stress of being a landlord may be worse

Ilovejenson

Our thoughts entirely Go Cat. We don't need the stress of worrying about missed rent payments, fixing this and that. Let's hope the offer comes, last time we were promised an offer it didn't come