Renting out do i need to change mortgage?

JoeK_3

SallyD wrote: »

I am going to be a first time buyer at 55. Due to retire in 6 years. I am looking to buy up North and have been thinking about letting out until I move up. Hoping to put 50% down. Expecting to pay no more than £120,000 top whack, realisically £100,000. Would a kind soul explain to me in the easiest of terms about the Buy to Let mortgages - I suspect even if I were to have a lodger on short term 3 - 6 month lets this is the type of mortgage I would have to go for instead of a regular mortgage and what is a reasonable interest rate for such a mortgage and can they be flexible because I would want to pay it up asap.

I really am new to this and have appointment with BS this week and need to understand things a little better before then.

Thanks,

Sally, you are hijacking someone else's thread

You have posted this in other threads.

Do you not have the answers that you are looking for?

JoeK

SallyD

Sorry, did not mean to hijack - not heard that term before. This is making very interesting reading. I am getting my answers plus more. Please accept my apologies everyone for jumping from one to another.

I realise now I should have stuck to my original thread.

Melissa177

One thing I don't understand: why do mortgage companies charge the amounts they do for changing the terms of the mortgage? What extra cost are they incurring to justify that?

I also don't understand the difference between a regular mortgage and a BTL mortgage - why does a BTL one require a 20% deposit on average?

jimpressly

How about a more morally justifiable angle - I am going abroad with my family to work for between 12 and 24 months, leaving behind the one property we own and have been living in since May 06. Obviously it makes sense to rent it out but the Portman Building Society have sent a standard letter saying they will increase my fixed interest mortgage by a full 1% as well as the £100 charge for every time it is let or re-let.
As it is a fixed mortgage (until Apr 08) with early redemption penalty it is not worth shopping around, but given that this is NOT a buy to let this charge seems excessive - Airforce-beret's experience is that Halifax do not charge in this situation.
If I appeal to them, what grounds can I use and will they back down?

silvercar

Argue that you are not seeking to let indefinitely and that it is not a BTL mortgage. You are merely asking for "consent to lease" for a short time.

jamesd

Melissa177 wrote: »

One thing I don't understand: why do mortgage companies charge the amounts they do for changing the terms of the mortgage? What extra cost are they incurring to justify that?

Depends on the change. If it was a fixed rate deal they had to source the money for the term and that cost them money. Normally they would recover it over the term but if you leave early they have to recover it more immediately. Sometimes these deals also are at a lower price and the tie-in is there so you don't take the price without remaining a customer long enough for them to make the profit they are after.

Melissa177 wrote: »

I also don't understand the difference between a regular mortgage and a BTL mortgage - why does a BTL one require a 20% deposit on average?

15% is standard. A BTL mortgage is a business mortgage, not a residential one. The tenants don't have an ownership interest in the property so have less incentive to look after it. That increases the risk to the lender's security, the property. If the tenants knock holes in all of the walls and you find you can't afford 15,000 to rebuild, the deposit provides some margin for a below purchase price sale to allow the lender to recover their money anyway. Same if you can't rent it out and they take the property because you stop paying the mortgage (not that you necessarily would; it happens though).

Since it's a different market the market competition is also different and in the past this has led to about a 1% price difference between residential and BTL mortgages, though that has been decreasing as the market grows.

Personally when shopping for a mortgage earlier this year I knew I might need to let the property out sometime so I asked lenders about letting permission as part of my initial phone questions to them. Answers ranged from no through yes, some small admin cost to yes, 1% higher interest rate while you're letting.

The different market and product is why the brokers here are letting you know that what you contemplated looks like mortgage fraud, since it looks very like getting the cheaper, safer product and intending to use it for the more expensive, riskier situation.

jimpressly, higher risk and they may also want to discourage it. Usual ways to handle higher risk in lending are with a higher interest rate or saying no. 1% isn't unreasonable - it's pretty much what you'd pay for a BTL mortgage. Fair enough, since you have some of the same main risk as the BTL: the tenants wrecking the place. Also, live in one year then let out is one approach used by some BTL landlords, for tax reasons, and they might wonder about that. Offer to provide them proof of the job change and they might be willing to reconsider, having reduced the BTL scam possibility. Or not.

Melissa177

Thanks Jamesd - that makes a lot of sense.

Depends on the change. If it was a fixed rate deal they had to source the money for the term and that cost them money. Normally they would recover it over the term but if you leave early they have to recover it more immediately. Sometimes these deals also are at a lower price and the tie-in is there so you don't take the price without remaining a customer long enough for them to make the profit they are after.

However, if I decided to rent out my property, say (something I might think about doing in the future, although not at the moment), then the money isn't changing hands. They aren't recovering any money from me, as I'm not wanting to remortgage - I have a five year fixed rate which I'm quite happy with. They're just changing the terms and conditions of the mortgage deed - which surely is only an administrative cost?

regularsaver1

qwertyqwerty wrote: »

Just spoke to the halifax, they say they don't do but to let mortgagees them selves, so if i was to change over i would have to pay the full 3% redemption fee, as i would be switching mortgages. So i have now decided to stick with my original mortgage, and cancel the insurance i have with the halifax, and get the landlords insuracne elsewhere. I'm a bit worried about doing this, is there anyone else who has taken this route, i.e not declare that someone else will be living in the property?

No but you have to get consent to let your property from them. problem is - they don't allow consent to lease above 85% LTV, so you would be in breach of contract so they would decline your request

there is an arrangement fee (roughly £499), you need to change the mortgage rate - an increase

they do this for the very reason that people try and do this instead of taking a BTL mortgage

regularsaver1

thesaint wrote: »

qwertyqwerty, does the house have enough bedrooms for you to have lodgers?

Halifax still like to have a letter confirming who are lodgers

regularsaver1

jimpressly wrote: »

How about a more morally justifiable angle - I am going abroad with my family to work for between 12 and 24 months, leaving behind the one property we own and have been living in since May 06. Obviously it makes sense to rent it out but the Portman Building Society have sent a standard letter saying they will increase my fixed interest mortgage by a full 1% as well as the £100 charge for every time it is let or re-let.
As it is a fixed mortgage (until Apr 08) with early redemption penalty it is not worth shopping around, but given that this is NOT a buy to let this charge seems excessive - Airforce-beret's experience is that Halifax do not charge in this situation.
If I appeal to them, what grounds can I use and will they back down?

Halifax do charge. the only exception is those in forces IF agreed and noted on original mortgage application file