1. Home
  2. UK Finance Discussions
  3. Permission to let conundrum

Permission to let conundrum

Let's say you have an ordinary variable rate interest-only mortgage on a flat which is your main residence. You want to rent it out for what would be several years but don't wish to remortgage to buy-to-let to do this. Your mortgage company will permit an assured shorthold tenancy on the existing mortgage but only if (a) the period of the rental is no longer than 2 years and (b) your declared intention is to move back in at the end of the rental period. You do want to move back in eventually but not for about 10 years.

Firstly, on the permission to let application the mortgage company asks why you want to let the property. What sorts of reasons are they likely to accept, especially if they want you to move back in after a couple of years? (or if its easier what reasons WON'T they accept)

Secondly. which scenario would be "least risky":

1) you apply for permission to let with the stated reason and then at the end of the 2 year tenancy instead of moving back in you just renew the tenancy without telling the mortgage firm or remortgaging, and you do this every few years, hoping they don't find out. 2) you apply, are refused permission but rent it out anyway, hoping they never find out. 3) you don't apply for permission to rent in the first place, thus avoiding being turned down or the mortgage firm even having a suspicion that the flat is rented.

Your biggest worry is what the mortgage firm could do to you, your mortgage or the property if they found out you had rented without their permission. This is presuming the flat had been kept in good order the whole time and your mortgage had always been paid on time.

I've heard one of the reasons for getting permission is that it affects insurance but I don't know if this is home contents insurance or buildings insurance. If the latter does it make any difference that the flat is in a block which are all rented privately as well.

Thanks

Reply to
swerious
Loading thread data ...

In message , swerious writes

Your employer asking you to work in another area/country is a good one.

Best

Equally bad with 3

Equally bad with 2

The worst they will do is increase the interest rate. It isnt a criminal offence. Are you likely to seek another mortgage for another property?

Its buildings insurance. You MUST get this bit right, but as it is a flat I assume that is covered by your management charge and will cover sub lets, but you MUST check that it allows letting.

Reply to
John Boyle

Thanks John,

I suppose I would have to say it's just a short-term contract rather than an indefinite move. Are they likely to check up on it with my employer?

They couldn't force me to remortgage then? And it wouldn't also put my tenants in jeopardy?

Only if I sold the flat some day. Why, could the scenario give me a bad credit rating or do you just mean it would be difficult raising a 2nd mortgage?

Yes I can get permission from the freeholder - they wouldn't grass me up to my mortgage company then?

The flat is in a block with 5 others, almost all of which are rented out. The leaseholders get annual demands for the buildings insurance from the freeholder and to my knowledge the policy has never changed as a result of the tenanted position.

Reply to
swerious

In message , swerious writes

Yes

No.

No. But they could force you to transfer to their own 'buy to let' scheme

I cant see how.

It wouldnt be a 2nd mortgage it would be another mortgage. The reason I asked is that if you wanted another mortgage was that you would need to have your flat mortgage packaged in a Buy to Let mortgage in order to ensure that your new mortgagee will regard your Buy to Let as being 'self financing' and standing alone thereby enabling all your salary to be used in calculating your maximum mortgage on the new property.

No.

Good, be sure you tell the insurer though. I cant see a problem with your plan. Go for it!

Reply to
John Boyle

I can. The lender could find him in breach of the T&Cs and invoke the clause which gives them the right to force him to repay the loan forthwith in its entirety. If (when) he can't, they will repossess. This could well result in the tenants being kicked out onto the street.

Reply to
Ronald Raygun

Isn't that a sort of worst-case scenario though? John's reply has reflected 2 or 3 other people's opinions that so long as the mortgage firm get their money each month they won't be worried.

In all honesty the reason for trying to get round the rules is not any objection to paying a higher interest rate but that (a) the lease is not very long (62 yrs) and would probably cost thousands to renew and this may be a condition of remortgaging and (b) there is a 2nd charge on the lease and the charge owner would require another payment of thousands to remove the charge to facilitate the remortgage. Thus remortgaging would hike up my mortgage and/or force me to sell up, neither of which I want to do, but the flat is also too small for my growing family so letting it out and moving elsewhere is my only alternative. I would rather do anything than remortgage, I would be happy to agree just to pay the higher interest rate and whatever setup/admin fee they like, IOW a remortgage without all the leasehold bollocks. Is it worth my while being honest with the mortgage firm and telling them all this?

Reply to
swerious

Indeed.

That's true enough. They are unlikely to have teams of detectives looking around trying to see if borrowers really are living "at home".

But if you do happen to miss a payment, perhaps due to a cash flow problem brought about by a tenant not paying the rent on time, or due to being "between tenants" for too long, they might want to know why and then if they find out you've been diddling them, they might then be inclined to nip the problem in the bud instead of waiting for it to get worse.

Not sure why you think it would be. It's not as if you were extending the term.

How do you know it's an alternative at all? How sure are you that you will be able to find a tenant quickly? Would you be buying elsewhere (with all its cost implications) or moving into rented accommodation? Would you be taking your furniture with you? If so, you may need to buy furniture for your tenants. You'll probably have to redecorate for them in any case.

Why are you set against selling? If you move out, how sure are you that you'll be so keen to move back once (presumably) the kids leave home?

Probably not.

Reply to
Ronald Raygun

Understood. I guess a good way of heading off this potential situation would be to always keep 3 months worth of mortgage payments in a savings account or similar to cover for such eventualities.

OK, I had assumed since it would be effectively a new mortgage they would be lending on a flat with a shortish lease.

Thanks but believe me I've thought about all this and we can get tenants OK and renting is the best solution in the medium-term.

Thought so :)

Reply to
swerious

3 months? May I suggest you ask your optician to "hold the rose tint" on your next pair of spectacles?

They would, but I thought the relevant figure would be the number of years left by the time the mortgage term ends. Worst case is they need to repossess during the last few years, and if the lease is short

*then*, the property will be more difficult/costly to sell (or would realise a smaller value at auction).
Reply to
Ronald Raygun

Well yeah, but if I had much more than that knocking about I wouldn't be in this situation in the first place :)

Reply to
swerious

I suggest you need more. I consider myself lucky to have found my first tenant within about 6 weeks of buying my rental flat, and to have had a void of only 2 months between when he left and the next one came. But my next void was 6 months.

Just as well my mortgage interest is only £7 a month. :-)

Reply to
Ronald Raygun

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.