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Renting Out Houses With Owner Occupier Mortgages?

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A lad in my office was incredulous the other day because he has moved out of his flat and wants to rent it out. When he told his bank they said he would need to convert to a buy-to-let mortgage, which of course is a disgrace! <_< Greedy banks yada-yada

Now it turns out everyone who rents out flats in my place of work (4 in my team) ALL use standard mortgages and not BTL as they are 'a complete rip off' It seemed to be that if they had to pay the higher rate, this would tip the scale of making it financially viable in every case.

This ignited my curiosity, why are the banks OK with this? Surely they price BTL more expensive for a reason? Surely it wouldn't be that difficult for the banks to cross reference flats/houses for rent with those they lend mortgages on . Is it just something that is unenforceable?

As I say because if the banks put these owners on BTL they would ALL sell. I'm sure this would be repeated around the country, so why no action?

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A lad in my office was incredulous the other day because he has moved out of his flat and wants to rent it out. When he told his bank they said he would need to convert to a buy-to-let mortgage, which of course is a disgrace! <_< Greedy banks yada-yada

Now it turns out everyone who rents out flats in my place of work (4 in my team) ALL use standard mortgages and not BTL as they are 'a complete rip off' It seemed to be that if they had to pay the higher rate, this would tip the scale of making it financially viable in every case.

This ignited my curiosity, why are the banks OK with this? Surely they price BTL more expensive for a reason? Surely it wouldn't be that difficult for the banks to cross reference flats/houses for rent with those they lend mortgages on . Is it just something that is unenforceable?

As I say because if the banks put these owners on BTL they would ALL sell. I'm sure this would be repeated around the country, so why no action?

In theory, if they are caught (for example the tenant shop them as the mortgage statement will still have to go to the address to avoid suspicion), then the bank can demand an immediate repayment of the entire mortgage. Or worse, accuse the borrowers as committing mortgage fraud.

http://www.thisismoney.co.uk/money/experts/article-2029183/Can-I-rent-house-telling-mortgage-lender.html

In the real world, I haven't seen a case where on get caught but I would imagine it is just going to be converted into BTL + a hefty fees.

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The Banks are in on the fraud. They know it, we know it...but the banks will only take action if their hands are forced..if they really meant business and checked all mortgages properly, then it would make the house of cards wobble even more..

Edited by GinAndPlatonic

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A lad in my office was incredulous the other day because he has moved out of his flat and wants to rent it out. When he told his bank they said he would need to convert to a buy-to-let mortgage, which of course is a disgrace! <_< Greedy banks yada-yada

Now it turns out everyone who rents out flats in my place of work (4 in my team) ALL use standard mortgages and not BTL as they are 'a complete rip off' It seemed to be that if they had to pay the higher rate, this would tip the scale of making it financially viable in every case.

This ignited my curiosity, why are the banks OK with this? Surely they price BTL more expensive for a reason? Surely it wouldn't be that difficult for the banks to cross reference flats/houses for rent with those they lend mortgages on . Is it just something that is unenforceable?

As I say because if the banks put these owners on BTL they would ALL sell. I'm sure this would be repeated around the country, so why no action?

Hard to see why the bank needs to charge the higher interest rate. The risk to them seems to depend on the LTV ratio. If they find that they're not being paid their recourse is to repossess to get at the equity. The extent to which they'll get their money back though this route has nothing to do with whether the place is rented out or not. In fact, if it's owner-occupied I would guess that the risk to the bank is higher because there's more chance that the owner has no other significant assets to make up any shortfall. Someone letting it has more chance of having at least one other source of equity which could be subjected to a charging order.

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In fact, if it's owner-occupied I would guess that the risk to the bank is higher because there's more chance that the owner has no other significant assets to make up any shortfall. Someone letting it has more chance of having at least one other source of equity which could be subjected to a charging order.

Doubtful.

An owner occupier is likely to do all he/she can not to get repossessed as it is their home.

When a BTL is in negative equity there's a decent change the "owner" will simply walk away. Especially if the owner is a corporation.

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Doubtful.

An owner occupier is likely to do all he/she can not to get repossessed as it is their home.

When a BTL is in negative equity there's a decent change the "owner" will simply walk away. Especially if the owner is a corporation.

But I guess it's rare the owner of a corporation won't have signed a personal guarantee or won't have a personal property on which a charge for the shortfall can be placed.

I wonder if OO mortgages have clauses allowing the lender to shunt the interest rate up in the event of renting, rather than converting to BTL.

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Hard to see why the bank needs to charge the higher interest rate. The risk to them seems to depend on the LTV ratio. If they find that they're not being paid their recourse is to repossess to get at the equity. The extent to which they'll get their money back though this route has nothing to do with whether the place is rented out or not. In fact, if it's owner-occupied I would guess that the risk to the bank is higher because there's more chance that the owner has no other significant assets to make up any shortfall. Someone letting it has more chance of having at least one other source of equity which could be subjected to a charging order.

You are the Chief Exec of the Nationwide Building Society (:lol:) and I claim my £5.

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I wonder what would happen if someone bought a house, then let it out on an assured shorthold tenancy with a FIXED term of 10 or 20 years for a rent thats less than the mortgage, and then did a runner to some far off land.

If the tenant kept paying the rent could the bank repossess?

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The whole mortgage market needs looking at. Its broken, and just looking at each problem in isolation is no way to solve it. There is too much money being made on both sides by defrauding someone.

I'm not against proffit as thats how business works. Its causing great stress on a personal, national and international levels. Yes they can "fix" bits but it wont sort the systematic fraud.

The regulator needs to step in and come down hard on banks, and help them use the (legal) small print correctly.

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I wonder what would happen if someone bought a house, then let it out on an assured shorthold tenancy with a FIXED term of 10 or 20 years for a rent thats less than the mortgage, and then did a runner to some far off land.

If the tenant kept paying the rent could the bank repossess?

I would think that renting it out would be a breach of the mortgage conditions that would enable the bank to repossess irrespective of the rent being up to date or the length of the tenancy.

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Doubtful.

An owner occupier is likely to do all he/she can not to get repossessed as it is their home.

When a BTL is in negative equity there's a decent change the "owner" will simply walk away. Especially if the owner is a corporation.

If you look at the shockingly high Irish mortgage arrears figures, you will see that there are more BTL who are behind on their mortgage. Your assumptions are correct.

http://www.centralbank.ie/press-area/press-releases/Pages/MortgageArrearsandRepossessionsStatisticsQ12013.aspx

At end-March 2013, there were 774,109 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, to a value of €109.9 billion. Of this total stock of accounts, 95,554, or 12.3 per cent, were in arrears of more than 90 days.

At end-March 2013, there were 149,395 residential mortgage accounts for buy-to-let properties held in the Republic of Ireland, to a value of €30.9 billion. Of this total stock of accounts, 29,369, or 19.7 per cent, were in arrears of more than 90 days.

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Mind you one of the reasons BTL mortgages have a higher rate of arrears is that they are paying a higher interest rate.

It would be nice if the banks took a holistic approach and foreclosed on the property the landlord lives in before coming for the one thats rented out.

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Mind you one of the reasons BTL mortgages have a higher rate of arrears is that they are paying a higher interest rate.

It would be nice if the banks took a holistic approach and foreclosed on the property the landlord lives in before coming for the one thats rented out.

Unlikely to be a main reason. BTL is not an easy business to run and a few months void or a defaulting tenants + a slow court could topedo everything.

Further, if you only have enough money to pay one mortgage, you will pay the one you are living in, not the BTL one.

Edited by easy2012

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Someone letting it has more chance of having at least one other source of equity which could be subjected to a charging order.

Most of these people who are renting out their FTB purchase got another mortgage to buy their second house. They have doubled down on a leveraged property gamble and are a huge credit risk since both of their properties will likely fall in price at the same time if there is an HPC.

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A lad in my office was incredulous the other day because he has moved out of his flat and wants to rent it out. When he told his bank they said he would need to convert to a buy-to-let mortgage, which of course is a disgrace! <_< Greedy banks yada-yada

Now it turns out everyone who rents out flats in my place of work (4 in my team) ALL use standard mortgages and not BTL as they are 'a complete rip off' It seemed to be that if they had to pay the higher rate, this would tip the scale of making it financially viable in every case.

This ignited my curiosity, why are the banks OK with this? Surely they price BTL more expensive for a reason? Surely it wouldn't be that difficult for the banks to cross reference flats/houses for rent with those they lend mortgages on . Is it just something that is unenforceable?

As I say because if the banks put these owners on BTL they would ALL sell. I'm sure this would be repeated around the country, so why no action?

Cant fault em, give the banks f**k all.

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Why on earth aren't the banks double checking their mortgage books? Is it because (1) they believe they are backstopped by the govt and (2) they don't want their dodgy mortgage books down-valued?

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I wonder what would happen if someone bought a house, then let it out on an assured shorthold tenancy with a FIXED term of 10 or 20 years for a rent thats less than the mortgage, and then did a runner to some far off land.

If the tenant kept paying the rent could the bank repossess?

The AST would be invalid and the bank could repo and evict with zero notice. The tenant has no rights, and would have to sue the owner.

This is because the "landlord" had a pre-existing contract with the bank that prevented him legitimately signing an AST contract.

This situation does come up some times. The banks are usually quite sensible about it and after taking possession they'll give the tenant reasonable notice as it's in their interest to keep the tenant happy so they return the house in the best possible condition, and with the minimum legal costs.

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The AST would be invalid and the bank could repo and evict with zero notice. The tenant has no rights, and would have to sue the owner.

This is because the "landlord" had a pre-existing contract with the bank that prevented him legitimately signing an AST contract.

This situation does come up some times. The banks are usually quite sensible about it and after taking possession they'll give the tenant reasonable notice as it's in their interest to keep the tenant happy so they return the house in the best possible condition, and with the minimum legal costs.

Mortgage Repossessions (Protection of Tenants etc) Act 2010

This recent Act does now give a little more protection for tenants who are caught in this situation.

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Its needs tenants and letting agents to be educated too. Tenants need to check whether a rental property is subject to a mortgage or not, and if its a residential mortgage, don't sign.

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Its needs tenants and letting agents to be educated too. Tenants need to check whether a rental property is subject to a mortgage or not, and if its a residential mortgage, don't sign.

How can the tenant find out whether or not it is a residential mortgage and whether the lender has given consent to let?

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A lad in my office was incredulous the other day because he has moved out of his flat and wants to rent it out. When he told his bank they said he would need to convert to a buy-to-let mortgage, which of course is a disgrace! <_< Greedy banks yada-yada

Now it turns out everyone who rents out flats in my place of work (4 in my team) ALL use standard mortgages and not BTL as they are 'a complete rip off' It seemed to be that if they had to pay the higher rate, this would tip the scale of making it financially viable in every case.

This ignited my curiosity, why are the banks OK with this? Surely they price BTL more expensive for a reason? Surely it wouldn't be that difficult for the banks to cross reference flats/houses for rent with those they lend mortgages on . Is it just something that is unenforceable?

As I say because if the banks put these owners on BTL they would ALL sell. I'm sure this would be repeated around the country, so why no action?

Another interesting point about this scenario is that they are leaving themselves exposed to a lot of problems if/when there is ever political will to clamp down on this. There are clear trails to their fraudulent activity as they are potentially:

1) evading tax on rental income because they are scared that would leave an audit trail to their fraudulent mortgage activity. Presumably their bank account shows this unless it's cash in hand (unlikely), and HMRC do have access to bank records.

2) leaving the audit trail to their breach of mortgage terms open by paying tax on rental income whilst possibly claiming the interest part as a 'business expense' (if HMRC ever talked to their mortgage provider)

Either way, they are up s**t creek if someone wanted to investigate. I can understand their ire at paying a higher rate for a BTL mortgage than a residential one (though I would far rather see borrow to let outlawed), but they are playing with fire by doing so.

Edited by Frugal Git

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I wonder what would happen if someone bought a house, then let it out on an assured shorthold tenancy with a FIXED term of 10 or 20 years for a rent thats less than the mortgage, and then did a runner to some far off land.

If the tenant kept paying the rent could the bank repossess?

Yes. As I understand it (and the law operates to protect the lenders here):

If the lender is aware of the tenant, then they have to honour the AST term (as they probably had chance to see sight of it/approve it).

If the lender ISN'T aware of the tenant, then they can repossess and kick out tenant.

This is one of the reasons that a tenant should shop their landlord if they suspect this is happening. If the LL runs into difficulties and can't pay, repossession proceedings can occur without the tenant knowing (unless they are opening post addressed to the landlord). First time they find out is when the bailiffs arrive to evict them that day.

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Mortgage Repossessions (Protection of Tenants etc) Act 2010

This recent Act does now give a little more protection for tenants who are caught in this situation.

This allows the tenant to request a delay of eviction of up to 2 months. The court is permitted to reject the application for delay in eviction, if the tenant has not made best efforts to contact the mortagee and tell them that they are living there, keep the property in good condition, and otherwise abide by the tenancy agreement.

Edited by ChumpusRex

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