Letting a Negative Equity property

ChampagneFever

I have a situation and im not sure what is the best way to proceed forward.

I bought a flat on a 100% mortgage, 5yr fixed rate. I lived there for about a year until i met my girlfriend. Living there was logistical nightmare so i looked to sell but house value had fallen below outstanding mortgage and mortgage had a £5k early settlement charge. I was advised at the time to rent it out, even though it is not allowed under my mortgage. I spoke to them at the time and a switch to buy to let would still trigger the £5k charge. So i have been renting it out for the last 4 years no problem.

Last year I bought a house with my girlfriend, again I looked at options on the flat but still negative equity and still incur £5k charge. The 5yr fixed term is up next month and I need to know what options are available to me. As it stands the potential value of property is £100k and have £108k outstanding on mortgage. With the new house we have mortgage, car hp and credit cards, so seriously doubt i could afford/be available to borrow the £8k. Also due to the fact im letting out the property without permission from lender, I am wary as to who i can ask. Ideally id either like to sell or rent it legitamitly.

When I enquired about mortgage balance, I was informed that lender wants out of english market so their products all have ridiculous rates to encourage you to go elsewhere.

Could someone please provide any advice as to what my options are?

kingstreet

You don't appear to have any.

Consent to let is required if letting, as is consent to sublet from the freeholder, if mentioned in the lease.

If selling, you will need the lender's approval to sell at a figure which will not repay the mortgage and need an agreement with the lender for the payment of the shortfall, either before completion, or after, if the lender will permit it.

holly_hobby

Well firstly, you will be in doo doo if the lender finds out you have let without their permission - which is called consent to let - as you are currently in breach of your mortgage T&Cs.

With possible penalty being for they to demand immediate redemption (ie repayment )of the mortgage - which leaves you to seeking a remortgage, which you won't obtain becuase you're in negative equity, and with no capital to address the shortfall on sale, or repay with cash - you're rather between a rock and a hard place.

Secondly, your buildings insurance is invalidated due to the unauthorised let (even if this is landlords insurance, it still requires the lenders agreement to let), which means that if the building is structually affected and/or damaged beyond repair, then you're up poop creep without a paddle - as you still owe the lender the full os mge regardless of this event.

So, you must contact your current lender and seek their consent to let (albeit a bit late in the day) - they may refused, if so you have no option but to sell up, and come to an agreemement with them on how you will repay any shortfall realised on disposal.

As to continue with your current arrangement, would be folly and can not be condoned or agreed with.

The above sounds harsh I know, but sometimes a bit of tough love is whats needed ....


Others will be along with comment shortly ...

Hope this helps

Holly

michaels

holly_hobby wrote: »

Secondly, your buildings insurance is invalidated due to the unauthorised let (even if this is landlords insurance, it still requires the lenders agreement to let), which means that if the building is structually affected and/or damaged beyond repair, then you're up poop creep without a paddle - as you still owe the lender the full os mge regardless of this event.

Surley this would depend on the T&C of the policy?

holly_hobby

Residentail mge T&Cs do not permit letting to any third party.

Consent to let is effectively having the lenders permission to operate outside of the contractual resi T&Cs agreed to (for a given period), albeit with their tacit agreement.

There are no expceptions to this ..... apart of course from Buy To Let T&Cs were it obv forms part of the contracutal T&Cs as standard.

Landlords ins always requires and assumes, that any mge lender is aware of the semi-commerical (let) status of the dwelling - otherwise it is ordinary that their breach of any mge T&Cs will invalidate the ins, and will be cited as non-disclosure of a material fact (ie - they don't want to be seen aiding and abetting in mge fraud, which is what concealment of the let status or a resi property on resi finance, would be cited as)

Hope this helps

Holly

michaels

holly_hobby wrote: »

Residentail mge T&Cs do not permit letting to any third party.

Consent to let is effectively having the lenders permission to operate outside of the contractual resi T&Cs agreed to (for a given period), albeit with their tacit agreement.

There are no expceptions to this ..... apart of course from Buy To Let T&Cs were it obv forms part of the contracutal T&Cs as standard.

Landlords ins always requires any mge lender to be aware of the semi-commerical (let) status of the dwelling - otherwise it is ordinary that their breach of any mge T&Cs will invalidate the ins (ie - they don't want to be seen adeing and abetting in mge fraud, which is what breach and non-disclosing of the let status, would be cited as)

Hope this helps

Holly

OK so what you are saying is that it does depend on the insurance T&Cs but that all such insurance products are likely to state in the T&Cs that the lender must be aware of the rental status as otherwise the insurnance co would be concerned that it might be considered party to a fraud? Makes sense.

kingstreet

FWIW this is a leasehold property and likely to be subject to a block insurance policy. If the lease permits subletting, that should also be acceptable to the buildings insurer.

There should be no need for separate landlord cover, so invalidating it isn't possible.

The lease needs to be checked for a subletting clause.

Having spent an afternoon checking, I couldn't find a landlord policy that was predicated on the landlord needing consent to let from their mortgage lender. Another member, a regular on the HBR&S forum did the same thing and he couldn't either.

ChampagneFever

Whats the likelihood that the lendor would be willing to give consent to let until im out of the negative equity period and am in a position to sell or remortgage on a buy to let?

holly_hobby

Sorry forgot it was a flat ..... so blds insurance is block, meaning that the OP needs the freeholders consent.

But the comments re assumption of the Landlord Blds insurer that any mortgagee is aware of the let status of the unit is standard.

If the mortgagee has not been made aware by the mortgagor that the residential property is being let, without CTL (or BTL mge), its classed as non-diclosure of a material fact (ie the proposer has concealed from his lender, , that he is operating a business from the property without consent, whilst further concealling from the insurer that he doesn't have the mortgagee's permission to proceed), and this would be cited in any refusal of claim (as thats when they do the digging !). Bit like on a car policy, when you don't have to send in proof of your NCD, unless you make a claim, when they demand proof ..... which has caught out quite a few peeps, whom end up with a load of backloaded premium, a failed claim and danger of going on the central baddie list !!

Hope this helps

Holly

holly_hobby

ChampagneFever wrote: »

Whats the likelihood that the lendor would be willing to give consent to let until im out of the negative equity period and am in a position to sell or remortgage on a buy to let?

Quite likely, because as it currently stands if you sell there will be no winners, and they are quite likely to end up with a loss. As long as the mge is self sufficient from the rental income, and you explain why you wish to wait until the market has recovered - they will probably try and accomodate, but its not gted, so it'll be a suck it and see exercise. (I may also be a bit cagey about it already being let, unless asked a direct question).

Hope this helps

Holly

ChampagneFever

I keep thinking if because they want out of the english market they would be willing to take a hit with the loss and let me remortgage on a buy to let. But think thats imaginary thinking!!