Getting caught with the wrong mortgage

Cactus25

I have a semi unrelated thread to this in another section which got me wondering about this question:


How do you get caught renting out a property with the wrong mortgage?


To give this some context, I have 3 friends who had their own apartments, met their partners years ago and moved in with them. I know each of them rent out their properties old (illegally I believe?)
They certainly don't have BTL mortgages, I've never asked them if they contacted their mortgage provider to switch mortgage but I suspect they haven't. Its not really a conversation Id have with them.



I highly doubt their income is declared, I know one of them is a completely informal arrangement. No contracts etc and all the bills are in the owners name, just paid for by his friend (the tenant?) Its been this way for at least 2 years for them.


So my question as I said above, how would they get caught?



Is there a government body checking peoples mortgages match the actual residents?
Do the police spend any time on this?
Do banks/building societies even care so long as the mortgage is paid on time?



I'm sure the penalties are obvious, mortgage revoked, large fines, maybe even prison for fraud etc etc but the punishments are somewhat irrelevant if they aren't ever going to get caught!


Based on the stick I got in the other thread for even knowing these people I'm sure this will be a lively topic!

Pixie5740

Cactus25 wrote: »

I have a semi unrelated thread to this in another section which got me wondering about this question:


How do you get caught renting out a property with the wrong mortgage?


To give this some context, I have 3 friends who had their own apartments, met their partners years ago and moved in with them. I know each of them rent out their properties old (illegally I believe?)
They certainly don't have BTL mortgages, I've never asked them if they contacted their mortgage provider to switch mortgage but I suspect they haven't. Its not really a conversation Id have with them.



I highly doubt their income is declared, I know one of them is a completely informal arrangement. No contracts etc and all the bills are in the owners name, just paid for by his friend (the tenant?) Its been this way for at least 2 years for them.


So my question as I said above, how would they get caught?



Is there a government body checking peoples mortgages match the actual residents?
Do the police spend any time on this?
Do banks/building societies even care so long as the mortgage is paid on time?



I'm sure the penalties are obvious, mortgage revoked, large fines, maybe even prison for fraud etc etc but the punishments are somewhat irrelevant if they aren't ever going to get caught!


Based on the stick I got in the other thread for even knowing these people I'm sure this will be a lively topic!

All it takes it for a letter to be "returned to sender" to alert an interested party or for a !!!!ed of tenant to go rogue and inform every party they can, HMRC, mortgage lender, freeholder, council, HSE to maximise the damage to the landlord. Alternately there could be a catastrophe such as a fire or flood and the property owner is caught with their pants down and is uninsured but the reality is that most people get away with it. Just look at how many threads this board gets either from tenants with clueless landlords or landlords themselves claiming it was all an accident.

G_M

It's perectly possible their mortgage lenders will never know.

Or they might fnd out.

House burns down, insurance refuses to pay out as it was not a landlords policy, lender realises they no longer have any security on the loan......

Lender writes to owner at the property. Tenant marks letter "does not live here - return to sender". Lender starts to investigate.

Owner updates his address at the Land Registry.Lender investigates. (or owner fails to update address at LR and becomes victim of a property scam as he never receives mail sent by LR....)

Owner and tenant have a dispute (about repairs? rent increase? whatever) or owner evicts tenant, and tenant writes to lender out of spite.

Owner gets into mortgage arrears - lender invetigates.

etc etc

But as for

Is there a government body checking peoples mortgages match the actual residents?
Do the police spend any time on this?
Do banks/building societies even care so long as the mortgage is paid on time?

No, no and yes.

Comms69

Cactus25 wrote: »

I have a semi unrelated thread to this in another section which got me wondering about this question:


How do you get caught renting out a property with the wrong mortgage?


To give this some context, I have 3 friends who had their own apartments, met their partners years ago and moved in with them. I know each of them rent out their properties old (illegally I believe?) - I doubt it's 'illegally'; but perhaps in breach of other contractual agreements.
They certainly don't have BTL mortgages, I've never asked them if they contacted their mortgage provider to switch mortgage but I suspect they haven't. Its not really a conversation Id have with them. - indeed. But you're happy to presume your friends are breaking the terms of their mortgage?



I highly doubt their income is declared, I know one of them is a completely informal arrangement. - so let HMRC know. No contracts - a written one isn't required. etc and all the bills are in the owners name, just paid for by his friend (the tenant?) Its been this way for at least 2 years for them. - well when the tenant decides to get awkward, your friend will find out how much rubbish can fall on their head all at once...


So my question as I said above, how would they get caught? - By who?



Is there a government body checking peoples mortgages match the actual residents? - obviously not.
Do the police spend any time on this? - no
Do banks/building societies even care so long as the mortgage is paid on time? - yes. BTL attracts higher rates



I'm sure the penalties are obvious, mortgage revoked - possibly. , large fines - possibly , maybe even prison for fraud - unlikely. etc etc but the punishments are somewhat irrelevant if they aren't ever going to get caught! - eventually everyone gets caught


Based on the stick I got in the other thread for even knowing these people I'm sure this will be a lively topic!

The fact that you suspect them of wrong doing and do nothing paint you in a bad light

AdrianC

^ They've answered how the lender can find out.

So let's say they do. Then what? Simple. They get a letter saying that the lending is being recalled, and please repay your mortgage within <x> months. Then what? You need to remortgage elsewhere in a hurry? Industry fraud checks may well reveal the reason. You can't remortgage. Perhaps you never could have got consent to let in the first place, and wouldn't qualify for a BtL mortgage. So you have to find £xx0,000 in a hurry - obviously, not straightforward. Can you get the tenant out in time to sell the property? Can you sell it in time?

And if somebody's omitting such a basic part of their business, what else are they omitting? Gas safety checks? Deposit protection? Income tax returns? HMRC really don't like that...

Rambosmum

You don't necessarily need a BTL mortgage. You can just ask for "consent to let" which some providers give out more easily than others, they then won't remortage you on a residential mortgage, but the consent to let remains for as long as the mortgage does (so if they never remortgge they won't need to switch to BTL).


Usually people get caught when the tenant doesn't pass on mail or returns a letter to sender, or the owner applies for a new mortgage on a separate house with the same provider. The penalties are rarely severe though (I know people who have got caught who have just been switched to BTL as it's a higher interest rate, and one person who was just given permission to let until the fixed rate term ended).

Cactus25

Thanks for your replies!


So basically what im taking from this is, so long as everything is going hunky dory for all parties, my friends have nothing to worry about. The moment things turn sour the likelihood of things going very sour is significant.


Realistically I'm never going to ask them about their financial affairs, its not the done thing is it. However I'm curious as to how they would approach their mortgage lender given this has been going on for years.


Anyone have any experience of switching from a FTB mortgage to a BTL mortgage?


Presumably one would just keep quite to the facts and disclose as little as possible when speaking to them without being deceitful. Or have I got it wrong, is switching to a BTL mortgage simply a phone call away assuming you stay with the same provider.


Thanks!

Comms69

Cactus25 wrote: »

Thanks for your replies!


So basically what im taking from this is, so long as everything is going hunky dory for all parties, my friends have nothing to worry about. The moment things turn sour the likelihood of things going very sour is significant. - Just like your wife's cake business... Wonder what happens when HMRC find out about that


Realistically I'm never going to ask them about their financial affairs, its not the done thing is it. However I'm curious as to how they would approach their mortgage lender given this has been going on for years. - Honesty is often the best policy.


Anyone have any experience of switching from a FTB mortgage to a BTL mortgage? - Yes hundreds of thousands of people.


Presumably one would just keep quite to the facts and disclose as little as possible when speaking to them without being deceitful. Or have I got it wrong, is switching to a BTL mortgage simply a phone call away assuming you stay with the same provider. - It's a new product, with everything that goes along with that.


Thanks!

I'm unsure how you feel entitled to judge your friends on potential fraud, when your wife is committing actual fraud.

sevenhills

Cactus25 wrote: »

I highly doubt their income is declared!

It only needs to be declared if it goes above the threshold of £7,500 per year.

Comms69

sevenhills wrote: »

It only needs to be declared if it goes above the threshold of £7,500 per year.

Think you're confused. That rent a room.

hazyjo

sevenhills wrote: »

It only needs to be declared if it goes above the threshold of £7,500 per year.

From G_M's guide:


Tax
You're running a business, even if it's a short term arrangement or rental to family, so you have to declare rental income whether tax is payable or not. Research the Income Tax liability and allowances before you start. Note only the interest element of your mortgage repayments is tax-deductable (see below). Consider Capital Gains Tax. If going abroad, & you have no agent, read the Non Resident Landlord Scheme - see below.