Reply to: Residential Mortgage v buy to let mortgage

[lje]

Mrs is keen on this idea at the moment. Trying to tell her its not that much of an investment etc with possible Capital Gains coming into it and that bunging a shedload into a pension may be better.

Don't just assume the Capital Gains Tax will be bad - look into it. If you ever live in the house as your main home then capital gains is not due for the time that you lived there and, in addition, is not due on the last 3 years. So you can rent out your home for 3 years and then sell it with no capital gains issues. There are also lots of allowances you can put against it. It has been a few years since I looked into this so my information will be out of date - but I would do the calculations if I were you and trying to decide between different options.

[psychocandy]

Recently heard about Let to Buy mortgages. This is where you keep your existing mortgage and, rent it out, with your mortgage providers permission. Then you get this special Let to Buy mortgage to buy the new house to live in yourself.

Apparently, all the calculations are done on how much income you get from renting the original house out rather than income multiples etc. Not looked into it that much so no idea how competitive the rates are.

Mrs is keen on this idea at the moment. Trying to tell her its not that much of an investment etc with possible Capital Gains coming into it and that bunging a shedload into a pension may be better.

[mooshld]

Because the rate of default is higher for BTL's than it is for residential mortgages as people are more attached to their home than an investment property. HTH

It does I wish they had just said that.

[geoff from contracta IOM]

I am with Nationwide and it was a similar thing I informed them when I was going to do it they charged me a nominal fee. Done deal.

However they have since changed their policy and you can stay on the same mortgage but they are charging an extra 1% interest to cover the apparent extra costs of these types of mortgages. When I asked them to detail those costs of course they couldn't so I requested for them to find them and send me a detailed break down. Of course they have not done that either.

Wish they would just be honest and say we are charging more because we can and there is nothing you can do about it.

Because the rate of default is higher for BTL's than it is for residential mortgages as people are more attached to their home than an investment property. HTH

[mooshld]

I am with Nationwide and it was a similar thing I informed them when I was going to do it they charged me a nominal fee. Done deal.

However they have since changed their policy and you can stay on the same mortgage but they are charging an extra 1% interest to cover the apparent extra costs of these types of mortgages. When I asked them to detail those costs of course they couldn't so I requested for them to find them and send me a detailed break down. Of course they have not done that either.

Wish they would just be honest and say we are charging more because we can and there is nothing you can do about it.

[hatter]

Ring up your lender and ask them their policy. They will probably want to sell you a BTL mortgage but persist. Good luck.

Thanks.

Just spoken with the lender and they werent as difficult to deal with as I had envisaged. They said there are a few questions I would need to answer, pay a £100 fee and then they look at each case individually. At least it wasnt a definate "no" from the start.

[ASB]

So which are the lenders that were happy to give permission for the houses to be let?

I am thinking of renting out my current house, but was hoping not to have to go through the BTL option at least for the time being?

Ring up your lender and ask them their policy. They will probably want to sell you a BTL mortgage but persist. Good luck.

[hatter]

So which are the lenders that were happy to give permission for the houses to be let?

I am thinking of renting out my current house, but was hoping not to have to go through the BTL option at least for the time being?

[lje]

I bought a second property on a residential mortgage and was using it during the week. The lender was in fact Alliance and Leicester.

When I started letting the property I asked them for permissions - so as not to be in breach of the conditions. They charged a fee, 100 quid or so. This lasted for 2 years and was renewed on a couple of occasions; they used to whinge a bit and had got down to 1 year renewals about 3 years ago. During this period I was also able to switch to different residential products.

It might be worth noting that my mortgage was also with Alliance and Leicester so it may be that they are unusual in being willing to give permission for your residential mortgage to be used when renting the house out.

[ASB]

I guess everybody's experience is different as are lenders attitudes. So here's mine.

I bought a second property on a residential mortgage and was using it during the week. The lender was in fact Alliance and Leicester.

When I started letting the property I asked them for permissions - so as not to be in breach of the conditions. They charged a fee, 100 quid or so. This lasted for 2 years and was renewed on a couple of occasions; they used to whinge a bit and had got down to 1 year renewals about 3 years ago. During this period I was also able to switch to different residential products.

They were quite happy for me to convert to a BTL mortgage, and pay a lot more in interest (it would in fact have been a number of times more since they wanted about 5% rather than the base + 0.24 I was on).

A couple of years ago, I needed to buy another house for me to live in. This was on a residential mortgage with first direct. They couldn't give a fig that I had another residential mortgage, they were only interested in my ability to repay. They had some modest concerns about the fact that my total borrowing compared to income was more than their usual allowed multiples - but this was easily resolved with a brief discussion with their underwriters. A+L however would NOT give me another residential mortgage without converting the first to BTL.

Clearly all lenders are different. If you can keep 2 residential mortgages (one with permission to let) then it will almost certainly be considerably cheaper if you don't have a high LTV. With a high LTV it will make less difference.

[northernladuk]

Good advice from the posters above. I would empahsise the point about renting it and not telling your providor. This is fraud plain and simple. You have entered in to a legal contract with them based on the details you have given. If they were not correct or have changed you are acting fradulently, black and white.

My providor authorised me to continue with my existing product and rent the house out so not a problem. The banks are falling over for good solid business at the moment so it wouldn't be in their best interest to turn away solid customers so give it a go. I used this authorisation as evidence when I got a 2nd residential mortgage. If you try for two residentials they will take the mortgage of your first off your available income which will more than likely mean you cannot cover your second. With a BTL or agreement they will not take these in to account.

Paying tax on the income is a different story.....

[geoff from contracta IOM]

The most important consideration you should have here will relate to capital gains tax and the fact that your principal private residence is exempt from CG tax were as investment properties are not, so seek advice before just redesignating what at the moment would be considered to be your private residence.

[lje]

I have rented my main home out in the past when I was living abroad. I spoke to the mortgage company and they gave me permission to rent the house out - I didn't need to change mortgage. They charged a fee of around £100 and I had to get their permission every 2 years. It seems like the most sensible solution.

As for getting another mortgage - last time I did that I did tell them about the mortgage on the rented out place. As long as it had been rented out for at least a year and the rent covered the mortgage they didn't care.

[mooshld]

Hello,

I was looking to get some advice from those that have been in a similar situation.

Firstly, I have a house that has been rented out for the last 5 years. How much of a risk would it be to me if this was on a residential mortgage? Would the mortgage provider NEED to really know about this as long as they get the monthly mortgage repayments on time?

Secondly, I will be buying a new house to live in and want to keep this other house on rent. If this was on a residential mortgage can it be kept like this or would I need to change this to a buy to let now.

Would there be any risk of leaving the mortgage as it is paying for itself and taking out a normal mortgage on a new house without declaring it in my mortgage application?

Any advice would be helpful.

Jas

As a landlord myself with a rental property here is my advice.

Change your existing mortgage now to a buy to let, as has been stated, in your agreement with the bank it will undoubtedly say somewhere what legal uses the property has for your current mortgage and you are in breach of these. Assuming you have insurance, its invalid so you are wasting money there. Should your property burn to the ground you will owe the bank an awful lot of money, which they could demand immediately.

I would also like to add that when you are committing fraud, as you are with your current arrangement. Its best not to publicly advertise the fact on a forum. At least try to phrase with "what if I ...." or "would this be okay.."

Anyone with an adequate amount of inclination could now find out who you are take this further.

Mooshld.

[DaveB]

Hello,

I was looking to get some advice from those that have been in a similar situation.

Firstly, I have a house that has been rented out for the last 5 years. How much of a risk would it be to me if this was on a residential mortgage? Would the mortgage provider NEED to really know about this as long as they get the monthly mortgage repayments on time?

Secondly, I will be buying a new house to live in and want to keep this other house on rent. If this was on a residential mortgage can it be kept like this or would I need to change this to a buy to let now.

Would there be any risk of leaving the mortgage as it is paying for itself and taking out a normal mortgage on a new house without declaring it in my mortgage application?

Any advice would be helpful.

Jas

Yes. Lenders will do a credit check on you that will show the other mortgage and if you haven't declared it on your application you'll get refused, at which point it will get very difficult to get a mortgage at all as once you have been refused by one lender the rest tend to follow suit (they know you have been refused as it goes on your credit record.)

If you do get away with it in the application and they find out later they may well foreclose on the new mortgage and demand the money back immediately has you obtained it by deception. If they are feeling really grumpy they may decide to report you for fraud as well.