Can't make a profit when renting via Barclays permission to let?

CarolineBaker

I can't sell my shared ownership flat at the moment because cladding fire safety investigations mean it is technically worth zero until remedial works are carried out, but I have had a baby and moved in with my partner. I want to rent my flat out but am not eligible for a buy to let mortgage as I own 70% of the property (and rent 30% from a housing association).
So temporary permission to let from Barclays is my best option, but I understand that under this arrangement I am not allowed to make a profit from renting it, only to cover my costs? I assume this is to prevent people who should be getting buy to let mortgages with the associated higher rates from getting permission to let instead to save on fees.
How can I set the rental rate at a fair price without making a profit? My monthly costs are about £900 per month and the monthly market rental rate is £1500. However once the remedial works start, my costs will skyrocket as I could be liable for a bill of £20,000 or more. I obviously can't make a tenancy agreement with someone at £900 per month and then suddenly increase it if/when my costs go up (timescales for remedial costs are very unclear and it could drag on for a while). 
Any advice would be greatly appreciated on how I can stick to the rules while also not leaving me extremely out of pocket please. 
Thanks 

[Deleted User]

CarolineBaker said:

I can't sell my shared ownership flat at the moment because cladding fire safety investigations mean it is technically worth zero until remedial works are carried out, but I have had a baby and moved in with my partner. I want to rent my flat out but am not eligible for a buy to let mortgage as I own 70% of the property (and rent 30% from a housing association).
So temporary permission to let from Barclays is my best option, but I understand that under this arrangement I am not allowed to make a profit from renting it, only to cover my costs? I assume this is to prevent people who should be getting buy to let mortgages with the associated higher rates from getting permission to let instead to save on fees.
How can I set the rental rate at a fair price without making a profit? My monthly costs are about £900 per month and the monthly market rental rate is £1500. However once the remedial works start, my costs will skyrocket as I could be liable for a bill of £20,000 or more. I obviously can't make a tenancy agreement with someone at £900 per month and then suddenly increase it if/when my costs go up (timescales for remedial costs are very unclear and it could drag on for a while). 
Any advice would be greatly appreciated on how I can stick to the rules while also not leaving me extremely out of pocket please. 
Thanks 

Where have you read/heard that you are not allowed to make a profit?  That's not a condition I have seen with consent to let.  This is from Barclay's website and nowhere does it mention not being able to make a profit whilst letting your property using consent to let.

https://www.barclays.co.uk/mortgages/existing-customer-centre/consent-to-let/

[Deleted User]

Its to put your mortgage in to a thing called a Consumer Buy to Let.  Its a different set of regulations than Buy to Let and Barclays decide if its CBTL or normal BTL if you bought the property with the intention of making profit. 
As you bought the property to live in then that isnt the case so you should be fine. 

Its just about your initial intention when purchasing rather than the exact monthly costs

K_S

@CarolineBaker

There are two separate aspects to renting out a shared ownership property with a mortgage.

First you need the HA's permission, afaik most HAs do not permit renting out of an SO property other than in exceptional circumstances. So the part you mentioned about "not making a profit" might relate to your specific HA's conditions. Have you sought and received permission for the same?

Second you need permission from your lender. I've not come across Barclays or other mainstream lenders having a "no profit" condition attached to their CTLs.

CarolineBaker

I also haven't seen anything in writing from Barclays, @Lover_of_Lycra.
Just verbally over the phone from Barclays when I rang to enquire about Permission to Let. The lady said that I couldn't rent it for higher than my mortgage + ground rent + service charge + buildings insurance + Estate agents costs. I had to ask her to repeat it as I was quite surprised and don't really see how Barclays can enforce this? (will they be asking for a copy of the tenancy agreement, and evidence of all my costs?)
Thanks 

tacpot12

If this does turn out to be correct, you might have to let it for amount you are allowed to let it for, and then increase the rent after the tenant has been in the property a year. I would doubt that they will monitor the level of rent over the time you are letting it out. And you can increase the rent slowly each year.

But really you should try to negotiate that you can also cover the repairs AND all your other expenses as landlord - you will need a legionella risk assessment, regular electrical inspections every five years, gas safety inspections every year if the property has mains gas, repairs that are not covered by deposit deductions, improvements to the ventilation when the tenants get mould, legal costs to evict them when they stop paying rent, etc
. 
You should also try to negotiate that you can keep enough money to cover the income tax that will be due (you'll have to do a Self Assessment return as your mortgage costs are not allowable expense) and to cover the Capital Gains tax that will be due when you sell the property.

If they want to be very strict about it, you might look into setting up an ESCROW account with a solicitor so that the HA can receive any profit after you stop renting BUT only after the repair bill and all taxes have been paid.

I've very sorry that you are being expected to remediate the failings of the builder to build the property to a safe standard. It is very unfair. I hope that you are able to let your flat out so that you can cover this cost without it causing hardship. 

K_S

@CarolineBaker I just had a look through the CTL conditions for Barclays and don't see anything that amounts to what you were told by the agent. Having said that, the agent's statement seems awfully specific and detailed so it may well be that SO mortgages are treated differently.

It does mention that permission will not be given for SO properties unless there is written permission from the shared equity holder (the HA). It isn't clear if you actually need to produce the letter or they'll take your declaration for it.

It's an interesting scenario, so please do update the thread when you have some movement.

CarolineBaker

@K_S I have permission from the Housing Association due to the current exceptional circumstances of it being difficult or impossible to sell or staircase right now because of pending remedial works on the cladding.

Incidentally, if I could staircase to 100% ownership right now, then I would (and then I could get a buy to let mortgage which would make life simpler than this consent to let stuff) - but I can't get a clear answer from Barclays on whether they would give me additional lending at this time with the cladding issue or not. It seems to be on a case by case basis but I can't figure out if its just difficult or impossible.

I also can't find anything in writing about a Barclays no profit clause on consent to let, officially or unofficially through fora like this - so I can't help but wonder if the person I spoke to at Barclays got the wrong end of the stick! 

K_S

CarolineBaker said:

@K_S I have permission from the Housing Association due to the current exceptional circumstances of it being difficult or impossible to sell or staircase right now because of pending remedial works on the cladding.
Incidentally, if I could staircase to 100% ownership right now, then I would (and then I could get a buy to let mortgage which would make life simpler than this consent to let stuff) - but I can't get a clear answer from Barclays on whether they would give me additional lending at this time with the cladding issue or not. It seems to be on a case by case basis but I can't figure out if its just difficult or impossible.
I also can't find anything in writing about a Barclays no profit clause on consent to let, officially or unofficially through fora like this - so I can't help but wonder if the person I spoke to at Barclays got the wrong end of the stick! 

It definitely looks like that to me.

In your place, I would just go ahead - download the Barclays Permission to Let application form, use market rent on it, attach the permission letter from the HA, sign and post it to them. Follow up after a week or so if you haven't heard back.

https://www.barclays.co.uk/mortgages/existing-customer-centre/consent-to-let/

Good luck and hope it works out!

CarolineBaker

Thanks @K_S.... Now I just need to see if there is any chance I can staircase to 100% and get a proper buy to let mortgage what with my ESW1 form being B2. Otherwise will proceed with the Permission to Let application. Thanks! 

CarolineBaker

@tacpot12 thanks for all these good ideas. There are certainly a lot of actual and potential costs to take into account when letting which justify letting it out for a more realistic amount than just the mortgage, ground rent, insurance etc.

I am hoping for the best and planning for the worst re: the cost of the remedial work.

Thank you