Fine for breaching mortgage conditions?

sillek

We took out a standard variable rate mortgage in 2005. A year later our circumstances changed and we moved out of our house and let it to tenants without informing the lender.
We appreciate this is a breach of the mortgage conditions.
When we contacted the lender to inform them of the changes they asked us to pay an immediate "fine" of 1% of the total mortgage (a considerable sum) or optionally switch to a 2 year fixed rate buy to let mortgage. The former is the cheaper option in the long term, but a lot more than we can lay our hands on immediately.
Is this fine acceptable as it seems rather harsh to us? We expected an admin fee of perhaps a few hundred.

PasturesNew

Seems about right and fair. As you should have taken a BTL mortgage in the first place and you've still got that option, I'd say you got off light.

silvercar

I don't think it is a fine, it is their charge to switch you to a BTL mortgage; think of it as an arrangement fee. They are not fining you for not telling them, they are charging you to switch.

As you genuinely lived in the property first, I think they are being harsh.

Are you going to continue letting it, or are you thinking of moving back in?

I would ask them if you can add the charge to the mortgage.

dunstonh

its quite normal for lenders to add 1% to a residential mortgage rate when you cease to use the property as your residence.

It is not a fine but a reflection that you are now using the borrowing for business reasons and not personal reasons and you have the wrong sort of mortgage for that purpose.

sillek

Yes, we did live in the property before our circumstances changed, so we didn't take out a BTL mortgage initially.

Our intention is to continue renting the property until such time that our circumstances revert and we may move back in, or sell. It is only being rented to cover the mortgage payments and not as a business and we are not making any profit from it. This is why it is quite hard to find such a large sum as a one off payment, although preferable to increasing the rate for a BTL mortgage.

MortgageMamma

I don't understand why you didnt just inform the lender and switch it to buy to let initially, would have saved all this hassle.

dunstonh

It is only being rented to cover the mortgage payments and not as a business and we are not making any profit from it.

Letting property is classed as a business. Doesnt matter if you profit or not. Hopefully, you have complied with the letting requirements, got your electric/gas checked and certified, local authority requirements and landlord requirements sorted? You should be keeping a log of your income and expenditure relating to this property and ideally, you should switch the mortgage to interest only basis rather than capital and repayment as you can only claim the interest only element against the rental income for tax purposes. Not the full repayment on a capital and repayment mortgage.

You should also keep all receipts and invoices for tax purposes in case the HMRC wants to verify your tax return.

Dan_Collins_2

Your own fault I am afraid. Its seems harsh but if you had looked in to it first you could have saved this. Dunstonh is correct also, although a little stiff sounding LOL!

dunstonh

It wasnt meant "stiff sounding". Although text can often come over that way.

Dan_Collins_2

dunstonh wrote: »

It wasnt meant "stiff sounding". Although text can often come over that way.

LOL just pulling your plonker!