Lenders Crack Down On 'accidental' Landlords

[Sancho Panza]

Telegraph 1/11/13

' Mortgage lenders are launching a tough new crackdown on thousands of so-called "accidental landlords" who let out their own homes without notifying their bank.

Lenders have become suspicious that vast numbers are keeping quiet about their arrangements to avoid being forced on to a higher interest rate or to switch to a more expensive buy-to-let loan.

In a concerted drive to catch those abusing the system, lenders are trawling the electoral register, social media websites and online letting agencies for signs that a property has been put up for rent.

Despite strong signs of a recovery in the housing market, thousands of people are still stuck in negative equity and are unable or unwilling to sell their property. Many become so-called accidental landlords as a result: some estimates suggest they make up as much as 30pc of the landlord market.

Lenders have tended to capitalise on this by increasing rates or requiring these borrowers to switch from a residential to a more expensive buy-to-let loan – significantly pushing up monthly repayments.

It is widely accepted that a large number of borrowers have tried to avoid this by not telling their mortgage company, but lenders now appear to be actively pursuing those breaking the rules.

Ray Boulger, a broker with John Charcol, said: "We know there are many borrowers who have let their property but failed to inform their lender. Before the financial crisis lenders didn't often check whether borrowers were still living in their property, but they are increasingly doing things like checking the electoral register to see who lives at an address and looking on letting websites such as Rightmove.co.uk to see if a property is listed. These borrowers now run a much greater risk of being caught."

Borrowers have a contractual obligation to inform their lender if they want to let a property. Many will face a rate rise of between 1 and 2 percentage points, plus an administration fee on top.

This is because lenders view buy-to-let properties as more risky because of the possibility of void periods – where the property is empty – or tenants falling into arrears.

Mr Boulger said: "If a borrower has 20pc equity in their home they have the option to move to a more competitive buy-to-let mortgage with another lender. But for those in negative equity, they are stuck with their existing lender and must accept whatever they offer."

Lenders have very different ways of dealing with these borrowers.

Nationwide caused a stir when it announced that it would raise rates by 1.5 percentage points for all residential borrowers who let their property for more than six months. It also charges a £30 administration fee.

The Co-operative Bank increases borrowers' interest rate by 1 percentage point. It also charges a £55 fee for the costs of transferring the mortgage from a residential basis to a letting arrangement.

HSBC allows residential mortgage customers to stay on their existing rate if they rent a property for 12 months or less. If the rental period is longer, it expects customers to remortgage to a buy-to-let deal.

Barclays gives residential customers two options – they can switch to a buy-to-let mortgage before renting the property out, or can ask for "consent to let". This allows them to let their property for up to two years with no change to the rate.

Santander said it would consider "consent to let" requests from residential borrowers for short-term letting arrangements. It allows these borrowers to stay on their existing mortgage but charges a £295 fee. Borrowers who planned to rent their property for an extended period would need to move to a buy-to-let mortgage in most cases.

Some smaller lenders such as Chelsea Building Society and Accord Mortgages impose a penalty on borrowers who do not tell them they are letting a property. They increase the rate for borrowers with consent to let by 1 percentage point, but the margin jumps to 2 percentage points for customers found to be letting a property without permission.

It might be tempting to let a property without telling the lender, but it is a high-risk move. It would breach the terms and conditions of the contract and in the worst case lenders could demand full and final repayment, which would force many borrowers to default on the loan.

Andrew Montlake of mortgage broker Coreco said letting a property without permission also invalidated home insurance policies, which could prove disastrous if something happened to the property while it was being let.'

[Bloo Loo]

Every Mortgage is recorded with a credit agency.

Banks have no need to trawl anything other than their own credit systems to look for people with TWO mortgages and One Postal address.

Easy enough then to have a local bod pop round the second house and check the residency....A man can deliver 100 parcels a day, similarly, a man could check 100 properties a day.

This could all be done in a week...IF there was really a will.

[Fully Detached]

This risks increasing the number of underwater borrowers that the banks then have to forbear or repossess. I can't see why they'd do this when their balance sheets are significantly stronger if they just continue to look the other way.

[@contradevian]

Every Mortgage is recorded with a credit agency.

Banks have no need to trawl anything other than their own credit systems to look for people with TWO mortgages and One Postal address.

Easy enough then to have a local bod pop round the second house and check the residency....A man can deliver 100 parcels a day, similarly, a man could check 100 properties a day.

This could all be done in a week...IF there was really a will.

Agreed. More propaganda / rubbish. Even local Councils use credit reference data to check up on unlawful subletting.

However I do know cases personally where a partner moves in with the other partner. Keeps the original house and lets it.

Edited November 1, 2013 by aSecureTenant

[TheCountOfNowhere]

Agreed. More propaganda / rubbish. Even local Councils use credit reference data to check up on unlawful subletting.

However I do know cases personally where a partner moves in with the other partner. Keeps the original house and lets it.

I know 2 accidental landlords, 1 couple ( with 2 kids now ) are in a particular mess and it wont take much to push them over the edge. They needed to move to get more space and the agents sold them a dud and got them to refinance their flat to do it...they have a LOT of debt and not a lot of income to cover it.

[slacker]

It has to happen, just as the government has to start finding a way to generate more net tax contribution from property value or transactions.

If all the debt, transaction heat and GDP etc. move to an area of the economy, it doesn't matter what your political views are, that area of the economy has to contribute.

There are a lot of anomalies around taxation on property and part of that has contributed to the HPI and BTL situations we have.

For a couple of decades people have been able to make 2x, 3x more than their salaries by trading property assets - creating massive untaxed income.

Some of that wealth has to come back in to reduce the debt problems (same with pensions) - because there isn't much collective wealth outside of that now.

If the Conservatives want a big income tax give-away before next election - maybe they will trade a land tax to get it - then it's not their fault but they get the benefit.

[koala_bear]

1. Checking will probably involve slightly more manual work than people seem to think to get to the 99.X% certainty that the lender would want before escalating.

2. Very few cases would involve cases with mortgages with the same bank (except asecuretennants example) and the lender might want to keep relatively quiet if they discover the other property with a different lender is the one that is being let out thus potentially effecting repayments on the property they lent on if the other bank takes higher repayments pushing the borrower over the edge...

3. I wonder how many accidentals have declared income to HMRC

[dances with sheeple]

1. Checking will probably involve slightly more manual work than people seem to think to get to the 99.X% certainty that the lender would want before escalating.

2. Very few cases would involve cases with mortgages with the same bank (except asecuretennants example) and the lender might want to keep relatively quiet if they discover the other property with a different lender is the one that is being let out thus potentially effecting repayments on the property they lent on if the other bank takes higher repayments pushing the borrower over the edge...

3. I wonder how many accidentals have declared income to HMRC

Wonder how many thought they were going to be "accidentals", then couldn`t get a tenant

[Si1]

Oh dear

Who is Nicole Blackmoor?

no Nicole lenders have not capitalised on this trend with higher rates for btl, rented homes actually carry more risk of default than owned ones so the finance is more expensive

Incompetent biased journalist

[Sour Mash]

This risks increasing the number of underwater borrowers that the banks then have to forbear or repossess. I can't see why they'd do this when their balance sheets are significantly stronger if they just continue to look the other way.

Agreed - under the current circumstances I can't see the banks risking mortgages going bad if they are presently being serviced, albeit under fraudulent auspices. It's all about pretending that loans are actually performing and as long as they don't ask too many questions, the loans actually do perform.

Of course, the 'accidental' landlords likely aren't complying with their tax obligations either. I wonder if HMRC might decide to be a little more proactive?

[jammo]

Tenants should be notified by the banks if the property is no officially being let so they can legally stop paying council tax. I would say it's a moral duty of the bank to do so. All they need do is send a letter to the "occupier" of all of their mortgaged (not BTL) houses stating that if they are not <name of mortgager> to please stop paying council tax and tv licence, as it is not their obligation.

[SarahBell]

Tenants should be notified by the banks if the property is no officially being let so they can legally stop paying council tax. I would say it's a moral duty of the bank to do so. All they need do is send a letter to the "occupier" of all of their mortgaged (not BTL) houses stating that if they are not <name of mortgager> to please stop paying council tax and tv licence, as it is not their obligation.

But council tax and TV licence are for occupiers unless it's an HMO?

[Si1]

Agreed - under the current circumstances I can't see the banks risking mortgages going bad if they are presently being serviced, albeit under fraudulent auspices. It's all about pretending that loans are actually performing and as long as they don't ask too many questions, the loans actually do perform.

Of course, the 'accidental' landlords likely aren't complying with their tax obligations either. I wonder if HMRC might decide to be a little more proactive?

Surely it's not up to the banks so much as the entities that hold the bonds backing the mortgages; they may prefer some more candour from the banks in the longer run I might imagine

[Bloo Loo]

Tenants should be notified by the banks if the property is no officially being let so they can legally stop paying council tax. I would say it's a moral duty of the bank to do so. All they need do is send a letter to the "occupier" of all of their mortgaged (not BTL) houses stating that if they are not <name of mortgager> to please stop paying council tax and tv licence, as it is not their obligation.

The occupier is liable for the taxes you say they should not be paying

[Guest]

We need a website for tenants to log the details of their landlord... most tenants will have their name and address from the contract.

[Lennon]

It's not quite the same thing - but I know of 3 couples now who have moved out of their 1 or 2 bed Central London (Zone 1/2 borders) flat for a 3 or 4 bed house in Zone 3/4 - and without exception they have all chosen to keep the flat and rent it out - not due to lack of ability to sell - but purely because 'you'd be mad to sell a central london flat - the prices just keep going up'. How they manage to square this with the income / mortgage on 2nd property I have no idea and havn't asked, but... at some point, a lot of people are going to be in a lot of pain...

[SarahBell]

We need a website for tenants to log the details of their landlord... most tenants will have their name and address from the contract.

The easy way is for the banks to mark their envelopes 'do not forward' and then tenants will know the bank is sending mortgage statements there.