Renting out a house without telling the mortgage lender
Discussion
A colleague's wife was made redundant last year and having been unable to find a job they explained the situation to the lender and went onto an interest only mortgage. However they're still struggling to survive so are looking to live with relatives for 12 months or so.
The mortgage is about £102k and the property value around £100k.
They dont want to step off the property ladder so are thinking about renting it out privateley.
Their questions are:
1) What can the lender (Alliance and Leicester) do if they find out?
2) What are the chances of the lender actually finding out?
3) What other problems could they encounter?
4) Do they have any other options?
As always, I thought there is bound to be someone here who knows about this kind of thing - so its over to you lot!
The mortgage is about £102k and the property value around £100k.
They dont want to step off the property ladder so are thinking about renting it out privateley.
Their questions are:
1) What can the lender (Alliance and Leicester) do if they find out?
2) What are the chances of the lender actually finding out?
3) What other problems could they encounter?
4) Do they have any other options?
As always, I thought there is bound to be someone here who knows about this kind of thing - so its over to you lot!
My big concern, even more than the lender finding out, would be insurance.
I've heard of some lenders being reasonably sympathetic to people in this situation who have spoken to them about renting their house out as a short term measure - it's in the lender's interests that the mortgage keeps getting paid - but I don't know what A&L are like about it.
I've heard of some lenders being reasonably sympathetic to people in this situation who have spoken to them about renting their house out as a short term measure - it's in the lender's interests that the mortgage keeps getting paid - but I don't know what A&L are like about it.
Not sure on the specifics ( perhaps they could call the lender and ask anonymously?)
An alternative might be to take in a lodger?
£350 pcm tax free. That should cover the mortgage and enable them to stay in their own home without risking losing it to an angry bank.
www.spareroom.co.uk
An alternative might be to take in a lodger?
£350 pcm tax free. That should cover the mortgage and enable them to stay in their own home without risking losing it to an angry bank.
www.spareroom.co.uk
Goochie said:
I mentioned insurance to them today and they think the tennant will be contents insurance and they can get landlords insurance to cover the building?
Is this not the case? Would it not just be the same as a normal buy-to-let property?
Yes that would cover it. Landlords insurance is quite a lot more expensive though as it includes things like public liability insurance.Is this not the case? Would it not just be the same as a normal buy-to-let property?
Out of interest how much is the mortgage and what do they hope to achieve in terms or rental income?
B17NNS said:
Goochie said:
I mentioned insurance to them today and they think the tennant will be contents insurance and they can get landlords insurance to cover the building?
Is this not the case? Would it not just be the same as a normal buy-to-let property?
Yes that would cover it. Landlords insurance is quite a lot more expensive though as it includes things like public liability insurance.Is this not the case? Would it not just be the same as a normal buy-to-let property?
Out of interest how much is the mortgage and what do they hope to achieve in terms or rental income?
Goochie said:
I dont know how much the mortgage is but I presume about £150- £180 ish per month interest only. Rental income could be £400-£475
I know there are other costs that will disapear if they move in with friends/family (council tax, water, gas, electric etc) but why not get a get a part time job, work for minimum wage or whatever. Its £200 pcm.Either that or a lodger.
As someone who's been on the other end I know that if the lender was to repossess, the tenants would be royally screwed if the lender wasn't made aware by the landlord of what was going on. I always ask now, and plenty of agencies (but sadly not enough) do too.
Anyway:
1) Whatever it states in the T&C for the mortgage - typically it says that the mortgage is subject to you actually living there. If you're not, you're breaching the terms of the mortgage and they could ultimately ask you to repay in full or foreclose/repossess.
2) Debatable - but every lender has gone from a position of seemingly handing out money to anyone who asked, to severely tightening up on their lending criteria. If the lender wanted to review existing mortgages there's plenty of public domain info (like electoral records) which it could use to flag up suspicious cases to investigate. I'd imagine people who've made changes like going IO would be a pretty good place to start.
3) Insurance as others mention. No insurance means big potential liabilities.
4) Sell, take in a lodger, or go and get a job to keep the mortgage paid.
The house is worth what it's worth - all the notions of "keeping a foot on the ladder" and the like don't count for a lot if they're not making enough to actually service the mortgage.
Anyway:
1) Whatever it states in the T&C for the mortgage - typically it says that the mortgage is subject to you actually living there. If you're not, you're breaching the terms of the mortgage and they could ultimately ask you to repay in full or foreclose/repossess.
2) Debatable - but every lender has gone from a position of seemingly handing out money to anyone who asked, to severely tightening up on their lending criteria. If the lender wanted to review existing mortgages there's plenty of public domain info (like electoral records) which it could use to flag up suspicious cases to investigate. I'd imagine people who've made changes like going IO would be a pretty good place to start.
3) Insurance as others mention. No insurance means big potential liabilities.
4) Sell, take in a lodger, or go and get a job to keep the mortgage paid.
The house is worth what it's worth - all the notions of "keeping a foot on the ladder" and the like don't count for a lot if they're not making enough to actually service the mortgage.
tony m said:
i rented a house out a couple of years ago without telling the bank,then when they did find out all i had to do was fill in some forms and give them a hundred pounds,its been ok since,
That would assume nothing went wrong.....Tell the bank, it shouldn't be a problem as it will keep the mortgage payments coming in...
From my dealings with Alliance & Leicester I do not believe they will be fussed about a change to a buy to let mortgage. So as another poster mentioned, make an anonymous enquiry to check out charges etc., then obtain insurance cover for rental property.
http://www.alliance-leicester.co.uk/mortgages/exis...
http://www.alliance-leicester.co.uk/mortgages/exis...
That is a sad story but all too common.
They will need landlord’s insurance and that does require the bank’s consent to require. I do not imagine any insurance company would want to see it before hand. However, in the event of a claim they will ask for a copy, of that I am sure and not having one will invalidate the insurance.
The bank may be unlikely to find out. The only thing is that mortgage statements and any other correspondence will come to the main address so this may tip the tenant off that something is afoot – dependent on how savvy they are. Saying that how many tenants know the need to have a ‘consent to lend’ assuming they are serial tenants?
On another note some banks charge a one off fee, others consent without any penalties whilst some add another 0.5% (or more) to the interest rate as the risk is increased (a tenant will not take care of a property like a owner borrower would).
I guess they are pros and cons and walking, but as long as they do the risk analysis. However, a mortgage manager I know at a large bank said to me “how will they find out?” and he’s in the game.
They will need landlord’s insurance and that does require the bank’s consent to require. I do not imagine any insurance company would want to see it before hand. However, in the event of a claim they will ask for a copy, of that I am sure and not having one will invalidate the insurance.
The bank may be unlikely to find out. The only thing is that mortgage statements and any other correspondence will come to the main address so this may tip the tenant off that something is afoot – dependent on how savvy they are. Saying that how many tenants know the need to have a ‘consent to lend’ assuming they are serial tenants?
On another note some banks charge a one off fee, others consent without any penalties whilst some add another 0.5% (or more) to the interest rate as the risk is increased (a tenant will not take care of a property like a owner borrower would).
I guess they are pros and cons and walking, but as long as they do the risk analysis. However, a mortgage manager I know at a large bank said to me “how will they find out?” and he’s in the game.
Your pals will almost certainly be better off by speaking to A&L about their situation - i.e. being honest - and then seeing what the bank suggests and, if that's what they still want to do - going into the new deal with their knowledge.
I suspect that the start-up costs will not be very high, but if they do it secretly and anything does go wrong there won't be any goodwill and the legal position may be very dodgy.
Most banks will be understanding in the circumstances but, as others have said, it's not a pot of free money because there are other costs that will have to be offset. Nevertheless, if they think that they are close to managing their present costs (and if they're not they should sell and move on) then it may be a sensible option. But if they do, be open and honest about it.
Fraud is serious - look at what it cost Mandelson the first time around.
I suspect that the start-up costs will not be very high, but if they do it secretly and anything does go wrong there won't be any goodwill and the legal position may be very dodgy.
Most banks will be understanding in the circumstances but, as others have said, it's not a pot of free money because there are other costs that will have to be offset. Nevertheless, if they think that they are close to managing their present costs (and if they're not they should sell and move on) then it may be a sensible option. But if they do, be open and honest about it.
Fraud is serious - look at what it cost Mandelson the first time around.
I'd just like to point out that my missus rents her flat out, and it costs her £100 per year for a 'consent to let' and there are no changes to her mortgage - it's an SVR jobby. And that's with Alliance & Leicester.
Oh, and she's in (relatively) enormous negative equity too.
Oh, and she's in (relatively) enormous negative equity too.
Edited by bigandclever on Friday 12th February 20:25
That's why I added it - OP suggests the situation may be similar. I made a post ages ago because I was worried (on the GF's behalf) about what the situation may have been, and to be honest I was surprised that it took one phonecall from her to A&L to sort it out. For all I know, she may be tied into an 'expensive' mortgage and all that, but she can at least put the mortgage worries to one side, albeit her tenants don't actually cover the mortgage costs.
Years ago I had a mortgage with Abbey - needed to rent the place out and told them it would be for the short term whilst I started a new job and took a year or so to decide if I liked the job.
They were OK with it - no forms or cost.
In the end, I stayed in the job and continued to rent the house out for 7 years whilst it was mortgaged with Abbey - not once did they contact me.
Now that A&L and Abbey are together under Santander I'd assume that the internal systems are even worse than they used to
They were OK with it - no forms or cost.
In the end, I stayed in the job and continued to rent the house out for 7 years whilst it was mortgaged with Abbey - not once did they contact me.
Now that A&L and Abbey are together under Santander I'd assume that the internal systems are even worse than they used to
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