Remortgage advice

FrJackHackett

Hi folks. Just need a bit of advice on a few things.

My brother and I bought our parents' home from them in 2007 as they could no longer afford the payments due to remortgaging too many times! So much for setting an example!

Anyway, we're currently looking to remortgage as we're on Santander's SVR. £116k left, house recently valued at £150k. I'd like to raise around £10k for some renovation work on the house, which keeps the LTV below 85%.

Now, since we bought the house, we have both moved out and live with our own families elsewhere. As such, we drew up a lease and our parents now rent the house from us. Without getting into too much detail, my Mum receives disability benefits due to her arthritis, and therefore is able to have the rent paid from housing benefit. This doesn't quite cover the current payments, but would do so if we remortgaged with Santander, and probably still would if we moved to a new provider with raising the additional funds.

We went through a mortgage broker before Christmas, and everything looked to be going great, right until the offer was about to come through, when Virgin Money - rightly - queried why we were registered at different addresses on the electoral roll. Turned out the broker had neglected to tell them we didn't live there any more, despite us setting this out for him at the beginning. So that then fell through.

Tried again a couple of weeks ago via SoSmart Money. This time the broker used all the information, and looked like he could get us a fixed rate deal at 2.02% (seemed a bit generous, considering the LTV), but kept querying how the rent was paid. He actually told us what we were doing was illegal, but as far as I'm aware, there's nothing illegal about renting to family, and housing benefit can be paid as long as you're not living with the member(s) of your family to whom you pay rent. In the end, he said that "no lender would touch it". Maybe so, but I suspected he didn't want to be bothered with the hassle, seeing as he didn't contact us for about a week, until I emailed him, after which there was an immediate reply to tell us that.

So to cut a long story not-so-short, I'm wondering if anyone has any advice on whether we should try again, or even clarify what the problems are. Is it the housing benefit issue? Do lenders consider who is renting the property before providing a mortgage? This wouldn't be a buy-to-let, because our parents will live there for as long as they're with us, so we'd be looking for a residential mortgage with consent to let. Right now, we can just move to a fixed rate deal with Santander with no hassle. Just sign the forms and take the 2.79% fixed rate for 2 years, without raising additional funds. But if we could get a cheaper deal elsewhere, with or without raising funds, of course we'd prefer that!

Thanks in advance for any advice!

Thrugelmir

Did you apply for a residential mortgage originally?

Is the mortgage interest only?

FrJackHackett

Thrugelmir wrote: »

Did you apply for a residential mortgage originally?

Is the mortgage interest only?

Yes, it was residential originally, and still is. We both still lived at home when we bought it, so it suited us all at the time. My brother and I got some money to clear some debts we had back then and the burden was removed from our parents, so it was win-win.

It's a repayment mortgage.

MisterMotivated

FrJackHackett wrote: »

Do lenders consider who is renting the property before providing a mortgage? This wouldn't be a buy-to-let, because our parents will live there for as long as they're with us, so we'd be looking for a residential mortgage with consent to let.

I'm not an expert but I think residential with CTL is highly unlikely as you don't live there, don't plan to live there in the near future and are being paid rent by the current tenants. Lenders for BTL generally allow 75% LTV max (some do offer 80% but I don't know of any offering more than that). In addition, many BTL lenders won't allow you to rent to family (presumably because it is open to abuse, especially as your parents are claiming housing benefit).

tlc678910

2.79% would be an excellent rate for a let property.

I agree with MM that I wouldn't expect you will be able to get a new mortgage, through honest means unless it is buy to let because your property is let.

Tlc

Bravestar

So are you saying you are now in breach of your residential mortgage agreement? That is not illegal (a crime) but is unlawful as it in breach of your agreement (a civil matter).
The matter may be illegal if you have committed fraud by failing to disclose the material facts (or falsely stating facts) when applying for a mortgage. You may have used a broker, but you still have to review and agree to the application.

You may have lived there when you initially purchased the house, but a condition of a residential mortgage is that you continue to live there.

To let it out, you need consent to let, and as others have said, I don't think you will now get that in the circumstances.

You will also have an issue trying to remortgage on BTL, as lenders don't like these type of agreements where the property is let to immediate family.

It's not just because of the possibility of benefits abuse, but also because it can get the lender involved in additional regulatory requirements (and possible legal implications should you fail to keep up the repayments on the property, where repossession would then be attempted)

You'll also have problems with the LTV you are trying to achieve with a BTL.

You may also now have problems as your credit file presumably shows recent searches because of the 2 failed mortgage applications.

But apart from all that, it's probably ok

FrJackHackett

Thanks for the comments folks. I went ahead and remortgaged with Santander without the extra borrowing. I'll get consent to let sorted soon, to keep myself right.

Now, moving on... My partner and I have just had our first baby and are looking to move to somewhere with more space. We would like to buy, if possible. We have a deposit, so that's not a problem. We currently live in my partner's flat. She is in negative equity, so it's likely I'll be the sole borrower. We should be able to rent the flat out to cover the mortgage on it though. But on my own, I can comfortable afford a second mortgage.

My question now is whether this same situation is likely to affect us when applying for a mortgage for our own property. Given what I know, and what people have said here, if I was renting outside family, I'm guessing lenders would be happy enough. But are they likely to see the rental income from family as a negative? In a situation where someone already has a mortgage on a property they are renting out, do lenders ask for copies of leases, or are they happy enough with the usual 3 months banks statements, pay slips, etc?