Renting out a house

Jady3611

I took bad advice some years ago from a mortgage advisor who said it would be ok if I rented my house out on an interest only residential mortgage. Found out this was illegal. However, during this time I have rented it out to tenants but it is now empty. I have received a letter from my mortgage co saying that if I can't prove I have a plan in place to pay off my mortgage then they will put me on a repayment mortgage. The mortgage is 100k. I moved in with my partner and had a baby and now I am not working. I have put the house on the market but have not had much interest. Can I tell the mortgage co of my situation? I thought about telling them that the place is up for sale and that if there are no buyers then I want to rent it out. Legit this time. Any advice?

abankerbutnotafatcat

I don't think it is illegal - you need a consent to let from your mortgage provider but if they were willing to give you this it would be fine. A lot of let properties will be funded by IO loans as only the interest is tax deductible. The ultimate repayment source would be sale of the property, which as it isn't the owner's residence would be completely do-able.

Yes, tell them the situation but they will charge a CTL fee at the very least and will probably put you on a higher rate mortgage product. Some of their thought process will be dependent on your LTV.

BobQ

Jady3611 wrote: »

I took bad advice some years ago from a mortgage advisor who said it would be ok if I rented my house out on an interest only residential mortgage. Found out this was illegal. However, during this time I have rented it out to tenants but it is now empty. I have received a letter from my mortgage co saying that if I can't prove I have a plan in place to pay off my mortgage then they will put me on a repayment mortgage. The mortgage is 100k. I moved in with my partner and had a baby and now I am not working. I have put the house on the market but have not had much interest. Can I tell the mortgage co of my situation? I thought about telling them that the place is up for sale and that if there are no buyers then I want to rent it out. Legit this time. Any advice?

I assume you live elsewhere and the house in question is now vacant. Has the mortgage provider found out that the property was let or have they written to you because of missing mortgage payments?

If they have found out then its a breach of your mortgage contract and you had better eat humble pie and promise not to do it again and make any excuses you can think of. Its unlikely that you cannot sell it at the right price but if its now worth less than you paid and/or the mortgage has a high LTV you may have no choice to sell since even if they will let you do a BTL you may not be able to get a BTL mortgage or afford the extra interest they may apply.

If they do not know you have let it in the past you could tell them now that you have moved and want to do a BTL. They may allow it if its a fair proposition.

Either way you can sell at the right price.

Kynthia

If you took out a residential mortgage with the intention of letting the property then this may be illegal as it's fraud. If you moved out of your home and let it out without consent from the mortgage company then this is against the terms of your contract but not illegal.

However I'm not sure that the fact you've previously let the property is relevant to your current situation. Basically the world has changed and responsible lending means that interest only mortgages are no longer considered as acceptable. This is because once the term of the mortgage has finished you will still owe £100k and you need to tell the bank how you intend to repay the £100k in the future. If you have no plan they will then put you on a repayment mortgage which will then include paying off the capital as well as the interest element of the mortgage.

Are you within a fixed term of your mortgage? If not then perhaps a mortgage broker can help you find a better rate repayment mortgage than your bank is going to impose upon you. Also if you are finding you can't afford to live there and wish to let it out then ask the bank for consent to let, get a gas safety cert and report the income to the HMRC.

G_M

The situation regarding 'illegal' has been explained above.

My understanding is that the lender
a) has not become aware you let the property out (contrary to your mortgage contract) and
b) you are not in arrears (at least you don't mention this) but
c) they ARE concerned it is interest only with no plan in place to pay off the capital

Correct?

If so, speak to them. Do not mention the past letting (history now) but either
1) ask for Consent To Let in the future as a way to fund a Repayment mortgage or
2) discuss selling, and what would happen if you found yourself in negatve equity or
3) explain to them how you plan to pay off the capital (ie from your Endowment policy, ISA, inheritance, lottary etc)

If you DO let the property again, please do so properly next time. Not just the CTL. For example, did you declare the rent to HMRC for tax?

Read this:

New Landlords (information for new or prospective landlords)

Jady3611

Thank you for all the replies. They are very helpful. I have about 20-25% down on the property, according to a couple of valuations. It is on the market but if it does not sell in the next couple of months I am going to ask for a consent to lend. I did not know it was illegal to do a residential mortgage on a rented property but won't do it in future. The trouble is I'm not working so not sure I'd get another mortgage so it is really up to the bank if they agree to a consent to let.
Of course there is no record of me living there either, so I have shot myself in the foot in that sense!