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Btl Mortgages - The New Liar Loans?

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So, this is a purely "hypothetical" question.

Imagine you came across several people in their 20's and 30's who appear to be buying property in central London at prices that (in their particular circumstances) salaries or banks of Mum and Dad can't even come close to supporting.

The properties are all mortgaged and subsequently occupied by the purchasers. You have no paperwork conclusively demonstrating the type of mortgage obtained, although some purchasers indicate verbally that they have bought their property with the intention of it being a BTL “investment”. Property websites display random rental adverts for the properties, cropping up in the couple of months following purchase, but the actual occupant always remains the purchaser.

Although BTL mortgages generally require a higher deposit and incur higher rates, purchasing with such a vehicle does escape the salary affordability test as this is instead based on rental income (which for central London is obviously high).

Does anyone know what checks banks, mortgage companies or solicitors carry out to ensure that a BTL mortgage is not being issued for owner-occupancy purposes? Obviously a prospective purchaser would have a secondary, validated address (parents?) but surely due diligence must go deeper than this?

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So, this is a purely "hypothetical" question.

Imagine you came across several people in their 20's and 30's who appear to be buying property in central London at prices that (in their particular circumstances) salaries or banks of Mum and Dad can't even come close to supporting.

The properties are all mortgaged and subsequently occupied by the purchasers. You have no paperwork conclusively demonstrating the type of mortgage obtained, although some purchasers indicate verbally that they have bought their property with the intention of it being a BTL “investment”. Property websites display random rental adverts for the properties, cropping up in the couple of months following purchase, but the actual occupant always remains the purchaser.

Although BTL mortgages generally require a higher deposit and incur higher rates, purchasing with such a vehicle does escape the salary affordability test as this is instead based on rental income (which for central London is obviously high).

Does anyone know what checks banks, mortgage companies or solicitors carry out to ensure that a BTL mortgage is not being issued for owner-occupancy purposes? Obviously a prospective purchaser would have a secondary, validated address (parents?) but surely due diligence must go deeper than this?

Only if they think they can get more money out of you.

Plenty of folk are misusing both types of mortgages, knowingly.

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Only if they think they can get more money out of you.

Plenty of folk are misusing both types of mortgages, knowingly.

Aware of occupancy fraud (getting an owner-occupier mortgage for BTL investment 'cause it's cheaper). Not seen any media coverage of using BTL mortgages to avoid affordability tests. Obviously, the latter is lunacy if rates ever rise (admittedly not a pressing issue) but I'd be very interested if you have any links to back up your assertion.

If the next wave of UK mortgage fraud is based on assumed rental incomes (massive) rather than mis-stating salaries (small) then surely there will be nothing of any worth in the UK beyond imputed rent. National suicide in the long run...

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So, this is a purely "hypothetical" question.

Imagine you came across several people in their 20's and 30's who appear to be buying property in central London at prices that (in their particular circumstances) salaries or banks of Mum and Dad can't even come close to supporting.

The properties are all mortgaged and subsequently occupied by the purchasers. You have no paperwork conclusively demonstrating the type of mortgage obtained, although some purchasers indicate verbally that they have bought their property with the intention of it being a BTL “investment”. Property websites display random rental adverts for the properties, cropping up in the couple of months following purchase, but the actual occupant always remains the purchaser.

Although BTL mortgages generally require a higher deposit and incur higher rates, purchasing with such a vehicle does escape the salary affordability test as this is instead based on rental income (which for central London is obviously high).

Does anyone know what checks banks, mortgage companies or solicitors carry out to ensure that a BTL mortgage is not being issued for owner-occupancy purposes? Obviously a prospective purchaser would have a secondary, validated address (parents?) but surely due diligence must go deeper than this?

It's been a few years since I got a brand new BTL mortgage but all they wanted was my view on rental income which was then rubber stamped by their "surveyor" . When I ported another mortgage 2 years ago I was not asked a thing!

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Aware of occupancy fraud (getting an owner-occupier mortgage for BTL investment 'cause it's cheaper). Not seen any media coverage of using BTL mortgages to avoid affordability tests. Obviously, the latter is lunacy if rates ever rise (admittedly not a pressing issue) but I'd be very interested if you have any links to back up your assertion.

If the next wave of UK mortgage fraud is based on assumed rental incomes (massive) rather than mis-stating salaries (small) then surely there will be nothing of any worth in the UK beyond imputed rent. National suicide in the long run...

I think there was a beeb doc about this a couple of months ago (presented by the journalist with the round glasses who likes to shout at scientologists) but I can't find a link now. There is a small amount of media coverage though:

The Financial Services Authority (FSA) is worried about the fraudulent use of buy-to-let mortgages by some people who cannot obtain an ordinary residential mortgage. The regulator says people may be doing this to avoid recent restrictions on risky mortgage lending.

The warning comes in the FSA's second annual review of the risks to customers of the financial services industry.

...

"We are seeing anecdotal evidence of unregulated buy-to-let mortgages being used fraudulently as a replacement for regulated residential mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks," the FSA said. The regulator pointed out that this problem might grow because some potential borrowers had been shut out by the much greater restrictions now in place on risky mortgage lending.

...

However, the report pointed out that more than a million mortgages are due to be repaid in the next eight years which are interest-only.

http://www.bbc.co.uk/news/business-17353204

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It's been a few years since I got a brand new BTL mortgage but all they wanted was my view on rental income which was then rubber stamped by their "surveyor" . When I ported another mortgage 2 years ago I was not asked a thing!

...how big was the deposit?.....you lose your money before they do? :blink:

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It was 25%, back in 2007 and still the same now

So the lending costs have reduced but the price charged has been increased? Is that due to high demand? ;)

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The main restriction on BTL mortgages which safeguards against people using it as an alternative way to purchase is that the potential LL must already own a house and be able to prove that they live there. There are always ways around this, with BM you can have up to 5 applicants for each BTL. Only one must be a home owner.

The BTL criteria for BM is here

http://www.bmsolutio...teria/buytolet/

Highest LTV from BM is 75%

In 2007 there were some lenders doing BTL at 85% LTV

Mortgage Trust has just re-entered the market with an 80% LTV BTL.

BTL has always, in my opinion been a liar loan. Unregulated, unchecked and untaxed.

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The main restriction on BTL mortgages which safeguards against people using it as an alternative way to purchase is that the potential LL must already own a house and be able to prove that they live there. There are always ways around this, with BM you can have up to 5 applicants for each BTL. Only one must be a home owner.

The BTL criteria for BM is here

http://www.bmsolutio...teria/buytolet/

Highest LTV from BM is 75%

In 2007 there were some lenders doing BTL at 85% LTV

Mortgage Trust has just re-entered the market with an 80% LTV BTL.

BTL has always, in my opinion been a liar loan. Unregulated, unchecked and untaxed.

With BTL they now want a hefty deposit, realistic rent projection and a large chunk of equity in the LL's house to bck it up.

Most BTL lender of the last 10 years actually want shot of the business.

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It's been a few years since I got a brand new BTL mortgage but all they wanted was my view on rental income which was then rubber stamped by their "surveyor" . When I ported another mortgage 2 years ago I was not asked a thing!

The highest quality checks at no expense!

Still when the banks have got the taxpayer to ball them out I'm surprised they even asked.

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The highest quality checks at no expense!

Still when the banks have got the taxpayer to ball them out I'm surprised they even asked.

They probably did know in 2007 they would be bailed out in the future! Will be interesting to see what checks, if any, they carry out when I utilise next, but London is crazy and everything since October up at least 10-20% so cant find anything! Thought this apt...

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18 months back a mortgage broker was showing me the amounts I could borrow. His little table had salaries vs multipliers. The higher the salary the higher the multiple. By £100k household income they were happy to lend 5x said income. So pull in £100k and a half million mortgage was yours. I imagine lots of youngish London couples have that combined income, add £100k from bomad and that 2 need flat is yours.

There's still the minor issue of servicing that mortgage in a rising rate environment, but I guess you worry about that when you come to it.

NB I did not borrow 5x household income. In case you're concerned for me.

Edited by terryturbojr

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Was a bit sceptical about the OP's post but see that one of the posters on this thread on MSE is punting precisely this as a solution to a family with very low income who can't afford to buy with a normal mortgage: http://forums.moneysavingexpert.com/showthread.php?t=4893364

And if it's on MSE then it must be pretty widespread. So OP is correct: LIAR LOANS ARE BACK!

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With BTL they now want a hefty deposit, realistic rent projection and a large chunk of equity in the LL's house to bck it up.

Most BTL lender of the last 10 years actually want shot of the business.

The lenders are planning on more BTL not less. It's an easy option for them. Unregulated, less checks than on residential mortgages with barely any restrictions on re-possessing if payments are missed.

http://www.mortgages...r-hits-analysis

Mortgage Trust have an 80 LTV mortgage just launched. The Post Office have just started doing BTL again.

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The lenders are planning on more BTL not less. It's an easy option for them. Unregulated, less checks than on residential mortgages with barely any restrictions on re-possessing if payments are missed.

http://www.mortgages...r-hits-analysis

Mortgage Trust have an 80 LTV mortgage just launched. The Post Office have just started doing BTL again.

Add in the false valuation and instant equity brigade et voila!

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Was a bit sceptical about the OP's post but see that one of the posters on this thread on MSE is punting precisely this as a solution to a family with very low income who can't afford to buy with a normal mortgage: http://forums.moneysavingexpert.com/showthread.php?t=4893364

And if it's on MSE then it must be pretty widespread. So OP is correct: LIAR LOANS ARE BACK!

Also found it hard to believe banks are going down the Liar Loan path again so soon after the self-cert mess. Still, if you look hard enough you can find articles explaining the system:

http://uk.finance.yahoo.com/news/dont-accidental-mortgage-fraudster-092730970.html

Undoubtedly, as suggested in this piece, a dodgy broker is what you need. Would be interested to know how said brokers get round the general requirement that one of the applicants needs to be a UK property owner (without parents etc. being co-owners)? Could this be "certified" by the broker before the application is passed on to the bank as per the self-cert scam? If so, it's pretty obvious that no-one has learnt anything from the last few years.

First-time applicants obviously need a hefty deposit which will exclude those without bank of Mum and Dad. Am wondering though whether BTL loans are also an option being taken up by those moving off low-interest, 2008 residential deals that are coming to an end. Take a look at some of these BTL loans:

http://www.money.co.uk/mortgages/80-buy-to-let-mortgages.htm

Quite a lot of 120% deals for existing borrowers. Might help explain why there hasn't been a wave of repossessions focused on these "investors".

Edited by Cozza

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Also found it hard to believe banks are going down the Liar Loan path again so soon after the self-cert mess. Still, if you look hard enough you can find articles explaining the system:

http://uk.finance.ya...-092730970.html

Undoubtedly, as suggested in this piece, a dodgy broker is what you need. Would be interested to know how said brokers get round the general requirement that one of the applicants needs to be a UK property owner (without parents etc. being co-owners)? Could this be "certified" by the broker before the application is passed on to the bank as per the self-cert scam? If so, it's pretty obvious that no-one has learnt anything from the last few years.

First-time applicants obviously need a hefty deposit which will exclude those without bank of Mum and Dad. Am wondering though whether BTL loans are also an option being taken up by those moving off low-interest, 2008 residential deals that are coming to an end. Take a look at some of these BTL loans:

http://www.money.co....t-mortgages.htm

Quite a lot of 120% deals for existing borrowers. Might help explain why there hasn't been a wave of repossessions focused on these "investors".

Well looking at some of those one thing jumps out at me ,RBS Natwest and aldermore are the only banks that don't have a minimum income the other part that was alarming was the maximum age, seems like 80-90 years old is acceptable

,

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to be fair to this type of admittedly less than regulated lending you will need at least a 205 cash deposit before you will be considered.

sorry the above should read 20%

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to be fair to this type of admittedly less than regulated lending you will need at least a 205 cash deposit before you will be considered.

No.

All you need is "instant equity"

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No.

All you need is "instant equity"

Beat me to it. As well as your friendly mortgage broker all you need is a friendly surveyor who will over-value by 20%. Right now it's not even fraudulent - HTB has meant that the asking prices for central-London properties have risen by 20% in a matter of months. Who's to say whether this will, or will not, be eventually reflected in solid sale data. Not the surveyor. If one buyer seems to be getting a "good deal" relative to the valuation, then good for them.

As most of this (advertiser, valuer, broker) will all be dealt with "in-house" within a single EA, the only weak link for first-time buyers would be the solicitor who needs to turn a blind eye to the lack of UK property ownership (generally a requirement). Given this is only a £3.00 DLR check the solicitor is taking a big risk if they openly defraud the bank (why the bank can't check I don't know).

Of course, one simple strategy would be for the investor to buy a small place cheaply "up-north" on a residential mortgage which they then let out.They then use this to secure the BTL mortgage on the £800K+ place they intend to live in (valued at £1 million by the surveyor).

Bit complex depending on circumstances but seems doable.

Edited by Cozza

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sorry the above should read 20%

...what a 20% borrowed deposit will buy a 80% borrowed loan?......so if it all goes wrong, what stops anyone handing back the keys and talking a walk? ;)

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