Buildings insurance - second home

glosoli

My bad - I apologies!

inkie

I found the following on money wise website, which implies that a residential mortgage for a second property is fine for a family member to live in and a BTL is not needed, as long as you don't have an AST in place.....

A second mortgage works almost exactly the same as any other standard regulated residential mortgage, and most lenders will offer those looking for a loan for a second home their standard product range to choose from, with the same interest rates and fees.

However, they may cap their loan-to-value (LTV), or exercise extra-strict affordability criteria. Your lender may also require you to declare if your family member will live in the house and ask them to sign an occupier's consent form.

As an example, Barclays or Santander will typically lend up to 80% loan-to-value (LTV) on a second home, Halifax or Virgin 75% and Nationwide up to 85% LTV, though all will judge it on a case-by- case basis.

These are available on standard products, so at 80% LTV you could expect rates of about 2.5% for a two-year fixed-rate mortgage or 3.5% for a five-year fix. At 75% LTV, that falls to around 2% for a two-year fix or and just over 3% for a five-year fix.

Also beware that some lenders will not allow you to formally charge your family members rent. For example, a spokesman for Halifax says: "Applications where a tenancy agreement is in place between applicant and family member cannot be accepted. The mortgage can be used where a family member will occupy the property provided there is not a formal tenancy agreement."

NatWest does the same but that's not to say rent can't be charged; it just means there can be no formal legal contract in place between owner and tenant.

Pixie5740

If you charge rent in exchange for exclusive occupation of the property an Assured Shorthold Tenancy (assuming this is England or Wales) will automatically be created. An AST doesn't have to be in writing.

inkie

Thanks. So what about the last sentence above? That to me says as long as there is not a formal contract then it's ok.

sparky130a

I have to say i think BI is the least thing you should be covering yourself over as a priority.

Is the lender fully appraised of your plan?

I'd also be considering any potential tax implications.

glosoli

It is not the best example however in this case it is most definitely a regulated buy to let.

http://www.furnessbs.co.uk/upload/files/buyletdecisiontree%20ecd_FINAL(1).pdf

Pixie5740

inkie wrote: »

Thanks. So what about the last sentence above? That to me says as long as there is not a formal contract then it's ok.

I'm not sure how you got that from what I wrote. If you charge rent in exchange for exclusive occupation of the property an AST will be created whether you put it in writing or not. An AST which has not been written down doesn't hold any less weight in court than if you had put it in writing. You will still have all the responsibilities of a landlord whether you commit the tenancy to paper or not. The income will still be subject to income tax.

inkie

Ok thanks for that.

inkie

I have no problem with the landlord responsibility. I'm just saying that according to the quote from the money wise website it's permissible to have a residential mortgage for a family member to live in with natwest.

AdrianC

inkie wrote: »

I have no problem with the landlord responsibility. I'm just saying that according to the quote from the money wise website it's permissible to have a residential mortgage for a family member to live in with natwest.

It comes back to the "rent or no rent" question.

If you're buying it for Auntie Mabel to see her days out, and you're not charging any rent - or any other consideration - then it's fine.

If, otoh, you're buying it to help give a younger family member a foot up, and they'll be paying some kind of rent-a-like (as a way around them not actually being able to get a mortgage on their own account, let's be honest here), then... no.

And which do we think is the case here?