remorgtage complicated due to BTL to family member

nzmegs

Confusing one....but desperately need good advice.

I have a property in my name that my MIL lives in. She pays nominal rent to cover the small mortgage. But nothing close to the market rent.

We are remortging our own property that we live in. the remortgage company (virgin) want to know the details of the BTL (where the MIL lives) including a tenancy agreement stating the rent paid.

We don't have a tenancy agreement as it is a family member. But i can arrange to have one done. But obviously, we make no income from the property and do not want to put the incorrect inflated market rent on the tenancy agreement. But it seems that the bank want to know we are getting market rent for it.

What should we do? we won't get the remortgage unless we show a tenancy agreement. but we shouldn't lie about how much we get - should we?

Incidentally, we have had both properties for more than 10 years and never defaulted and always paid the rent/mortgage with no problems.

We only want to add £10,000 to our current mortgage and our repayments will be lower than our current ones.

I will also post this on the renting section.

kingstreet

Why is the other property being treated as a BTL and not a second property for a family member to live in rent-free?

What was put on the application?

nzmegs

it is owned by me with a BTL mortgage and the family member does pay rent - but not market rent

lonestarfan

Did you have a BTL mortgage or did you have a regulated BTL mortgage?
An ordinary btl is based on rental value and nearly always forbids letting to family members.
Regulated btl is based on your income and can be rented to family.
Be careful you're not opening a can of worms.
The lender is trying to establish the level of risk. If this is a self funding btl where the rent is 125% of mortgage payment based on rates of 7.5% then it's a managed risk.
Are you trying to get this through on your own or are you using a broker?
Kingstreet will know more than me about presenting it as a second property and the impact that will have on the affordability calculation.

kingstreet

If the income is sufficient to cover the new mortgage payments and the payments on the second property I would have treated it as a second property, hence the question.

It's only going to be classed as a BTL and "self-financing" if the rental income can be proven.

nzmegs

To be honest I have no idea - the original mortgage was set up 10 years ago by a broker who knew all the circumstances. So i assumed it was legit. it was however at a time when income didn't need to be taken into account just the possible rental income.

We are working with a broker to sort out the remortgage with Virgin. We are also self employed, so income is variable so hence the reason they are being so picky, i guess.

Would it be better to transfer the "rental" to a second property mortgage? Then we can do what we like with it.

It seems that doing a favour for a close relative is not welcomed by banks...

its not looking good as I can't pretend my MIL is paying a higher rent than she actually is - that would be fraud....

Yorkie1

nzmegs wrote: »

It seems that doing a favour for a close relative is not welcomed by banks...

As I understand it, the regulations require the banks to treat a BTL to a family member differently - they have no choice.