Friend intent on renting property without informing mortgage company

ARW1986

Hi All,


Basically my friend is intent on letting his flat out without informing his mortgage provider HSBC.


He has been on an interest only mortgage for about 7 years now and hasn't actually paid a penny off his mortgage. Currently owes £112k, bought the flat for around £125k. I have been urging him for years to try and re-mortgage to include capital repayment and finally start paying some money off the flat.


He is currently going through a re-mortgage with HSBC, trying to get to 80% LTV by decorating the flat and renewing the bathroom etc. and has told them he values it at £140k. They've recently valued it and whilst he hasn't told me what they've said, he has said it's bad news so no doubt they have come in with a valuation far lower than what he's wanted.


I'm currently expecting that he will end up on a 90% LTV capital repayment mortgage which is better than nothing, but he still insists on taking a risk and renting the flat out. He works in a family business and in all likelihood is set to inherit that business in the not so distant future and I worry that he will get himself caught out and any sanctions will affect his ability to do business as a business owner in future.


I'm meeting him tomorrow to try and reiterate my long term advice which has basically been to be honest and above board, work hard to bring the capital of the mortgage down and decide about renting out in future. It is purely a money making system for him, not really down to circumstance change. I've heard that perhaps if you have been in a mortgage for a certain period of time, you can have a 2 year grace period to rent it out without having to change to a buy-to-let? Could someone confirm this is true?


I am purely writing this to gain some help to ensure I'm giving him the right information tomorrow. I could allow him to take the risk as I've tried hard enough already but I don't want to see him get into any trouble when I could've done more.


So.....if he was to go to HSBC, suggest a change in circumstances and ask that he rents his flat out for a set period of time, anyone have any knowledge if he is likely to succeed? This would be using his current interest only mortgage as I acknowledge he couldn't do that immediately after re-mortgaging.


If he was to sell the flat for around £125-130k what would he likely receive after fees etc? He may well be better off taking £10k for arguments sake and just starting again.


If he didn't listen to me, re-mortgaged and then immediately let the flat out privately, exactly what sanctions is he likely to face and what would he need to do to avoid the chance of being caught out?


I appreciate this is a long post and poses a few questions, but any responses would be really helpful to me so I can map out exactly how to deal with it.


Thanks,
Andrew

stator

It's possible to gain "Consent to Let" under some circumstances, but usually it only lasts 12 months and then has to be renewed. I don't know if he would qualify.

I think your advice is sound, but unfortunately many people go ahead without permission anyway, and usually they get away with it. As long as the mortgage is paid on time the bank are unlikely to notice. It's only when things go wrong that they start to get messy.

R34GTT

If it is being let out then most Landlords would have an interest only mortgage anyway to help build up deposits for expanding their property portfolio and to reduce to the burden of vacant periods.

As for consent to let, well as the previous poster said, as long as the mortgage is being paid then it's highly unlikely the bank will notice. HSBC only grant consent to let for 12 months after that it would need to be a buy to let mortgage which they only offer to their Premier customers.

Is it on a tracker mortgage from 7 years ago? If so the rate must be very low anyway.

ARW1986

I'm not sure exactly what type of mortgage it's on. I know he's paying around £500 per month interest only which is astronomical.


So he would be pretty unlucky to get caught in this scenario? Although I imagine the likelihood of getting caught is linked to the type of tenant he has living there also.

R34GTT

I would imagine the worst that could happen is HSBC request full repayment of the mortgage leading to potentially not being able to get credit ever again with HSBC. However as long as no payments are missed then I'd find it hard to believe this would ever go down the route of a repossession, that would clearly be pretty bad and leave defaults on his credit file too.

HSBC are more likely to notice if he also banks with them because he will presumably be receiving a new income with the word 'rent' in the reference and need to change his address with HSBC. He will also be registering to vote elsewhere and the new tenants will likely wish to register too. HSBC could if they wanted, do an ID check and discover that your name is not only missing from the electoral roll at this property but also completely unrelated persons are registered. It is very unlikely that these cross checks will be done unless he falls into arrears.

The changing of correspondence address for the mortgage account and bank account would be the most risky thing initially but many people have second homes on residential mortgages so it's not completely out of the ordinary.

laurasavon

It's not just the mortgage company, if he ever needs to claim on his insurance I would expect the policy to include something along the lines of having the lenders permission to rent out.

He could make capital repayments without changing the mortgage to repayment - although it doesn't sound as though he would be committed to do that.

And as others have said he could apply for consent to let so he may not have to go down the buy to let route.

ARW1986

I think he's relying on a 'quick fix' mentality which doesn't work in most scenarios but definitely not with mortgages! I would like to think he would at least pay chunks off the capital with money he'll be making from the rent but that remains to be seen.

I wouldn't dream of taking a risk with my biggest asset and it frustrates me that he is willing to do so but at least a repossession scenario is unlikely to come about because I don't see him missing mortgage payments.

I'd like him to at least try and get consent to let but if he doesn't get approval and does it anyway I imagine the banks would come down harder on him if they ever found out, plus he's unlikely to gain approval.

Yorkie1

The two don't necessarily go together, but if he's not prepared to abide by the rules of his mortgage, is he willing to comply with all the legal requirements of being a LL, and to declare the income for tax purposes?

lee111s

Seems like a lot of effort for you to write all of this on behalf of a friend.

PBA

It's no big deal to let a property without consent. There won't be any consequences unless he starts missing mortgage payments. (Though if he does start missing payments the bank is likely to look to repossess more quickly than if it hadn't been let).

ARW1986

I'm pretty confident he wouldn't miss a mortgage payment so it's unlikely to be picked up by the bank in that case. The LL requirements is something I haven't really broached because I was unaware of what is required.

Lee, it is a lot of effort, thanks for pointing that out. I think it's quite an important subject and I want to ensure I know as much as possible before trying to change his mind or at least put him at a lower risk if he is insistent.

I appreciate the comments from all, really helpful 👍