Joint buy to let mortgage partner has bad credit history

(34 Posts)
IanD Sat 29-Sep-12 18:11:40

Hi me and my partner are considering buying a property to let out, our problem is that my partner has a bad credit history and we'll not get a mortgage going on her credit score not for the next 6 years at least, we have the funds for the deposit on a property worth around 70k, is there any way round this? Could I get the property in my name and then get a legally binding document to say she paid half?

Any thoughts?

Thanks...

daniellao Tue 11-Dec-12 13:08:43

Have you made a decision on what you're going to do about this Ian?

Large Mortgages

matth319 Mon 12-Nov-12 19:35:12

Hi!
I haven't looked at this thread until I last posted....! Unfortunately for CakeMeIAmYours - it looks like what I said originally (5th post) has held out to be true.....
However, despite all that, my only real point to you was - its a sad situation when we can't try and get around problems.....isn't that what being an "adviser" is all about in any profession? Surely, we shouldn't just give up on people because their situation isn't all rosy and perfect. I would have a lot less clients if I just gave them set blanket advice given one certain fact. I always said it was about the knowing the full situation, and then professional advice accordingly...and make a decision based on that advice.
Yes, its easy to make a knee jerk response of "don't enter into a transaction with someone who has adverse credit", and I would agree if it was a purely a new business relationship. But all things considered, there may be a very good reason for the credit problem, and if you live with someone, and let them into your life, you may have been together for 5, 10 or 15 years - you may even have children together; the biggest commitment of them all....Are you seriously warning not to buy a property in one name with a legal agreement in the background without knowing any of this telling information!?
Knowing the situation can give you everything you need to advise accordingly, advice that will certainly stand up to scrutiny of any kind.....

zookeeper Thu 18-Oct-12 16:31:59

oops sorry Cake; same thing.

zookeeper Thu 18-Oct-12 16:29:50

Isn't it the other way around? Isn't the bank the mortgageee and the person taking out the mortgage the mortgagor

CakeMeIAmYours Sat 06-Oct-12 17:36:06

I'm not sure what you mean by that?

The mortgagor is the legal owner of the property. The mortgagee is granted (by the mortgagor) a legal charge over the property for for the duration of the mortgage term.

Surely no-one is the legal owner of their home while they have a mortgage then?

I am a legally interested party in my property however - due to the tenancy-in-common agreement.

I'm not uncomfortable at all as I'm fully protected by the agreement drawn up prior to purchase confused I'll keep on paying my ExP's mortgage for as long as we have a very cheap rate on the current mortgage grin

CakeMeIAmYours Sat 06-Oct-12 16:08:47

Right, I understand, you have an equitable interest in the property, but you are not the legal owner.

Does this not make you uncomfortable? Why don't you remortgage in your sole name? You could be doing fabulous things to your credit rating by paying the mortgage, at the moment you're just enhancing your ExDP's credit score.

irishbird Sat 06-Oct-12 15:48:50

Arse. Was meant to be strike through instead of underline.

irishbird Sat 06-Oct-12 15:48:14

It's been a bloody bit of a while since I last did land law, but from memory if the express declaration has been entered into before the mortgage (and therefore registered) the mortgage company would either not touch it with a barge pole or require the other parties to the trust to agree to the mortgage and therefore be bound by any actions that were taken on any default. If the trust is set up after the mortgage, then the mortgage takes priority in any event.

But I may well be a bit wrong....

Irish is correct in that within the terms of my tenancy-in-common agreement there is a declaration of trust agreement.

Cake - in my circs if the mortgage holder defaults the first charge takes precedence(sp?) so the mortgage co have the right to sell the house as usual to recoup their money. Doesn't affect the terms of the tenancy-in-common though.

CakeMeIAmYours Sat 06-Oct-12 14:54:35

I suspect that you may be talking about an express declaration of trust that lies behind the title and specifies on what terms the equitable interest (rather than the legal interest) is held in

Irishbird Just out of interest, where an agreement like this exists, what would happen if the mortgage holder defaulted? Would the person with a share of the equitable title be able to enforce this over the lender's rights in a possession hearing?

CakeMeIAmYours Sat 06-Oct-12 14:48:30

I'm not belligerent enough to get into a bun fight over this, but as irishbird put rather better than I have, the names on the Mortgage (First Legal Charge) have to exactly match those on the deeds at the land registry.

There may well have been some legal jiggery pokery going on behind this, but as far as the actual mortgage goes, that situation really isn't possible.

As I've already said, how would the lender get the property back in the event of a default? If you were a joint owner, yet not on the mortgage, that would give the lender defective title and AFAIK there isn't a lender in the world that would lend on that basis. From the lender's perspective, the money would be out on loan at a secured rate, yet the loan would be essentially unsecured.

botandhothered Sat 06-Oct-12 14:39:45

Yes it was a declaration of trust but my name was definitely on the deed.

botandhothered Sat 06-Oct-12 14:38:22

On the deeds as joint owner, I think? It was 9 years ago. I put in 50 percent of full purchase price and he took out a mortgage in his name for the other 50 percent.

irishbird Sat 06-Oct-12 14:27:37

I suspect that you may be talking about an express declaration of trust that lies behind the title and specifies on what terms the equitable interest (rather than the legal interest) is held
In. It's not the same as a tenancy in common which requires both names to be on the legal as well as equitable title.

CakeMeIAmYours Sat 06-Oct-12 14:24:57

You've really got me thinking here about how this would work.

Hotandbothered when you say you were 'on the deeds' do you mean as a second charge holder?

Err - I pay the mortgage as I live here! We couldn't get a joint mortgage at the time as I was very newly self employed. So we had a tenants-in-common agreement drawn up. As I provided the deposit I have a larger % of ownership. There are lots of clauses in the agreement specific to our situation, but the main one is that if ExP (or me actually as I pay it) defaults on mortgage then mortgage co can turf me out...

So Cake - I beg to differ but it is perfectly possible and I'm quite sure I don't need to see anyone grin

The OP on the other hand should probably speak to someone not on mumsnet who will find an arrangement suitable to his and his partners situation.

CakeMeIAmYours Sat 06-Oct-12 14:11:30

MissKeithLemon I'm afraid that just isn't possible.

With an Tenants in Common agreement, you both own a percentage of the property, but you can't take out a mortgage over your percentage alone. (I'm using the term 'mortgage' in its legal sense, that is a first legal charge over the property)

Think that potential situation through for a moment.

What happens if your exP fails to pay the mortgage? The lender will not be able to repossess the property because you would own a percentage of it and could block the repossession. How would the lender get the property back?

Please don't take my word for it, I strongly suggest that you have an IFA/Mortgage adviser look at the documents for you.

botandhothered Sat 06-Oct-12 14:04:39

Cake, I have to agree with Misskeith.
I had exactly the same agreement with my exP. This was due to me having the deposit to put down, but a poor credit history...so not on the mortgage, but I was on the deeds.
We agreed I would get my deposit back then half of any profit after the mortgage was paid back. This is exactly what happened when we split up. Very straightforward.

expatinscotland Sat 06-Oct-12 13:59:29

Why on Earth do you want to enter into such a serious legal contract with someone who has defaulted on a mortgage in the past?

Utter rubbish sorry Cake. Tis perfectly possible to be named on a tenancy in common agreement without being a mortgage holder. I know this as I am co-owner of my own house but the mortgage is solely in ExP's name. I am of course named on the deeds, along with ExP and the mortgage co....

CakeMeIAmYours Sat 06-Oct-12 12:49:47

You could then have a tenancy-in-common agreement drawn up to protect the interests on both sides

No, you can't, as this would mean that the OP's partner would have to be on the deeds. The names on the deeds have to exactly match the charge. OP's partner can't obtain credit so cannot be named on the charge.

I know I sound harsh, but it is lending to people with poor credit histories* that caused the financial crash - it just isn't ok to try to get round the safeguards that have been put in place.

*...and the subsequent securitisation/selling on of these toxic debt portfolios

Wow - I'm quite shocked at the responses so far! OP - if you can secure a mortgage on your own then that will be easiest. You could then have a tenancy-in-common agreement drawn up to protect the interests on both sides.
If not, look around for an IFA with mortgage experience in your area. A decent one will find a mortgage suitable for an adverse credit history.

Alternatively (but much more work/hassle) is to form a ltd co and have the company apply for a mortgage - this depends on how much %deposit etc is available, but again an IFA or accountant would go through the options with you.

CakeMeIAmYours Sat 06-Oct-12 12:20:18

<<steps off soapbox>> smile

CakeMeIAmYours Sat 06-Oct-12 12:18:41

If I'm honest, my advice to the OP (hypothetical, as I am not currently FSA authorised) would be to not enter into any financial arrangements with anyone with a poor credit history under any circumstances.

I'm still not 100% clear on what the extent of OP's partner's adverse is; as you will be aware, mortgages don't go into 'default'. When he says mortgage defaults, does he mean missed payments/arrears? Possession proceedings? Actual repossession?

Either way, this is about as serious as it comes and shows a fairly high level of poor financial management. The lenders won't lend to her for a very good reason and I would encourage the OP to think very carefully about this.

Just as an aside, if, as an adviser, you did employ some cunning scheme to 'get around' this problem and it did all go belly up at some point, you would be in prime position for being sued for giving poor advice; it is fairly clear that it would not be in the OP's interests to enter into this agreement.

I really dislike this whole culture of trying to find a way around a certain problem as you put it. The 'problem' (that the partner cannot obtain credit) is there for a very good reason (that she demonstrably cannot be trusted with money).

I guess I see being unable to obtain credit as a result of a poor credit history as being in the same category as a driving ban, or a disqualification from holding a directorship. You have been given the privilege of being able to borrow money/drive/become a director, failed to manage that privilege in a responsible manner and therefore have had it taken away from you in order to protect others.

I just don't think it's a good thing to try and undermine this system.

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