Consent to Let refused due to initial purchase being under 5% Help to Buy scheme

FattMern

Hi.  My girlfriend will be moving in with me, and has requested a Consent to Let for her property from her mortgage lender.  Her intention was to let the house out for a couple of years to friends (who need a house for a couple of years), and then likely sell.  

Consent to Let has been denied by her lender on the basis that she bought the house in 2014 under the 5% Help to Buy Government-backed mortgage scheme.  This is a scheme which ceased to exist in 2017, and wasn't a government equity scheme.  The purchase took place nearly 7 years ago under a fixed rate mortgage, and she has since had the fixed rate extended, due to expire in ~18 months.  (For frame of reference the property was purchased for £110K.  It's possibly now worth £130K.  She has £88K remaining to pay on her mortgage.)

She had no intention of letting at the time of purchase, but her circumstances have changed.  She's challenged her lender but they are refusing to grant consent,  despite initial indication that there would be no problem.  A number of people she spoke to at her lender couldn't understand why the consent has been denied, as her scheme didn't involve any kind of government loan.

She's currently not working due to stress, and also due to an impending change of location (ie moving in with me... I'm about to complete on my first purchase, which has taken a long time and added to her stress).  She was looking forward to a fresh start in the new area, restarting her small business, and supplementing her income via nursing shifts (she previously worked as a senior A&E nurse), but hasn't been working for the last 6 months or so, so her recent finances don't look great, and would presumably prevent a remortgage.  

It seems that her choices are 1/ to sell the house and pay a large early repayment penalty fee, or 2/ to leave the house empty for the remainder of her fixed term.  Either way she lets down her friends, who now have very little time to find a bigger place due to impending baby.  Can anyone offer advice?

Thanks in advance,

AdrianC

IIRC, that scheme did indeed involve borrowing part of the "deposit" equity from the government, up to 20% of the value of the property so she would only have needed 5% equity at a time when many lenders were simply not lending at high LtVs.

That loan was interest-free for five years, then interest-bearing, and did not HAVE to be repaid until 25yrs or sale - but could be repaid early.
Has she repaid that?

The scheme itself barred letting the property.

ele_91

AdrianC said:

IIRC, that scheme did indeed involve borrowing part of the "deposit" equity from the government, up to 20% of the value of the property so she would only have needed 5% equity at a time when many lenders were simply not lending at high LtVs.

That loan was interest-free for five years, then interest-bearing, and did not HAVE to be repaid until 25yrs or sale - but could be repaid early.
Has she repaid that?

The scheme itself barred letting the property.

I think you are referring to a different scheme as there were two running, I also bought my first house where I did not borrow any additional loan or money but used a 5% deposit which was under the ‘guarantee scheme’. https://www.moneysavingexpert.com/news/2016/09/government-to-scrap-help-to-buy-mortgage-guarantee-scheme/

To the original poster, who is the lender? It does seem odd because as you say this was quite some time ago so presumably she is not still on the original fixated term. IIRC the rate was quite high and I switched as soon as I could to a ‘normal’ mortgage. 

theartfullodger

Lender can choose to refuse or not, if she reads mortgage conditions that will be outlined.

Never rent to friends or family.

She has option of paying off mortgage and renting to renting to a boring unknown tenant who passed reference and credit checks.

FattMern

AdrianC said:

IIRC, that scheme did indeed involve borrowing part of the "deposit" equity from the government, up to 20% of the value of the property so she would only have needed 5% equity at a time when many lenders were simply not lending at high LtVs.

That loan was interest-free for five years, then interest-bearing, and did not HAVE to be repaid until 25yrs or sale - but could be repaid early.
Has she repaid that?

The scheme itself barred letting the property.

This is a mortgage guarantee scheme not an equity scheme, there is no loan.   'the scheme guarantees that the Government will shoulder some of the cost if the lender lost money. Eg, if the borrower had failed to keep up with mortgage payments and the property was repossessed, but the subsequent property sale did not recoup the outstanding mortgage amount', and 'The scheme is similar to the 5% Help to Buy Government-backed mortgage scheme, which operated between 2013 and 2017.'

(Am unable to post the link, but this comes from a post on this website '5% deposit mortgages - how they work' post from Kit Sproson Updated 9 March 2021 (new-mortgage-scheme-for-5-deposit)

[Deleted User]

If the lender took some insurance from the government in order to grant the mortgage then there may well have been some small print that said the properties could only be used for Owner Occupation.   Its not something I have come across before but I am just saying it might not be the lenders decision here.  

FattMern

ele_91 said:

I think you are referring to a different scheme as there were two running, I also bought my first house where I did not borrow any additional loan or money but used a 5% deposit which was under the ‘guarantee scheme’.

That's the same scheme.  Lender is RBS, and she's not on the original fixed term.  The last advisor she spoke to was under the impression that she was unable to let until she had paid off the entire mortgage, or at least as long as she remained with RBS.  It just doesn't sound right.

[Deleted User]

although she is not on the same fixed terms, she is on the same mortgage with the same mortgage conditions.  Have you read the terms and conditions applicable at the time to see if it says anything? 

ele_91

I think I do actually remember there being some small print regarding letting the property, as I considered it but ended up just selling. Would it be an option to remortgage and repay the early charge? Not ideal but she would at least keep the asset and potentially get a better rate with more equity. 

FattMern

ele_91 said:

I think I do actually remember there being some small print regarding letting the property, as I considered it but ended up just selling. Would it be an option to remortgage and repay the early charge? Not ideal but she would at least keep the asset and potentially get a better rate with more equity. 

She doesn't think she'll be able to get a remortgage as she hasn't been working for ~6 months

FattMern

Deleted_User said:

although she is not on the same fixed terms, she is on the same mortgage with the same mortgage conditions.  Have you read the terms and conditions applicable at the time to see if it says anything? 

Paperwork refers to a Mortgage Variation, and does confirm that the original mortgage conditions apply.  There's nothing I can see in the original mortgage paperwork that states that Consent to Let can never be granted.  (She does have to request consent to allow the property to be left empty for more than 3 months, which is ironic considering they may be forcing her to do this by refusing Consent to Let.)