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buy to let question

(33 Posts)
noddyholder Mon 05-Oct-09 14:45:02

I am asking this for someone else as although I have bought and sold a lot am not 100% sure on this and want an expert opinion!Ok my friends have just sold their main home and also have a flat as an investment.They got it with a buy to let mortgage 2 years ago even though they had no intention of letting it as they use it for work and weekends but this was the only way to fund a second home.They have never let it so no tenancy agrement etc but mortgage always paid and they can afford it I presume.They are now planning to buy a house a family hom and are doing the mortgage etc and I thought the loan on the flat would be taken into account when checking them out but they say no as the bank think its let it is totally seperate.is this right?You can be mortgaged to the eyeballs and its ok!

noddyholder Mon 05-Oct-09 15:03:34

bump

JustAnotherManicMummy Mon 05-Oct-09 15:10:06

If the other property has a buy-to-let mortgage then in the past it would have been disregarded.

This is different to where it is a second property and then the total liability (ie the outstanding amount) would have deducted from what the lender was prepared to lend under the standard income calculations (eg 3 x basic salary).

However, in the current climate I would not be at all surprised if the lender asked to see the tenancy agreement to prove it is rented. And when they find it isn't then they may well apply the second senario.

These days it's all about affordability and lenders' lending limits.

HTH

noddyholder Mon 05-Oct-09 15:15:11

Thanks this is someone I know well and I think they ar about to come a cropper as they have no tenancy agreement and are about to borrow a HUGE amount and the buy to let is about 200k interest only!I thought they would need to show accounts but they don't think so.Could they get into trouble?it has never been let

ABetaDad Mon 05-Oct-09 15:16:24

Sounds sort of right and sort of wrong.

BTL mortgages were created for a special reason. In effect the mortgage was treated as a loan to a business and separate from the rest of your finances. Makes no sense economically but then that is how we got nto the whole mess of the credit crunch.

However, your friends should declare it when asked by the banks to state their full earnings and full income. Are they not intending to tell the bank when asked the question? Witholding information on a loan application is quite a different matter and can lead to quite serious consequences.

noddyholder Mon 05-Oct-09 15:20:40

Abeta this is what I gather.They bought a house in 2005 family home big morrtgage.The next year their brokerhmmsaid he could get them a buy to lt mortgage on a flat which they used for work.That mortgage was granted on projected rental income and I think the broker said that at a push they could say it was let to a family member(can you blieve this).they have us dit as a holiday home/work sleepover place ever since.Now they have sold family home and are buying a new one and I was shock when they told me how much mortgage as I thought they would take into account the 200k buy to let but they said no and I think they have just not declared it!!!!!!!!!!!It gets better they are 56 and 62 yrs old and interest only!

ABetaDad Mon 05-Oct-09 15:21:05

Another thing. Banks now routinely interogate the Land Registy datasets and also deep credit data searching to find out the true state of peoples assets and liabilities.

It is not like the world of 3 years ago.

noddyholder Mon 05-Oct-09 15:22:06

they have used it sorry keyboard faulty

JustAnotherManicMummy Mon 05-Oct-09 15:27:11

It will show on the credit reference check so they won't be able to hide it.

Some banks won't even do interest only mortgages on residential mortgages any more.

Basically if their income was £50,000 combined, then on a standard 2.5 x joint multiple they would be able to borrow £125,000. If, as I suspect they will have to provide evidence of rental of the flat and they can't the lender will deduct £200,000 form that figure. Leaving a minus amount!

The lender should also ask to see proof that they can sustain the payments into retirement.

That broker sounds like a dodgy one. Most of those bastards irresponsible people are now losing their jobs as the lenders are looking properly at assessing affordability.

He should be shopped to the FSA.

noddyholder Mon 05-Oct-09 15:30:23

In a way I hope so as I can see them in trouble.I thought their credit refernce would show it too.I have been buying and renovating for years and didn't think this was possible I am shocked.They do have pensions I suppose but the toatally mortgaes will be about 425k and they earn about 65 joint!

JustAnotherManicMummy Mon 05-Oct-09 15:40:54

I do hope they don't do something really stupid like put down a rental income to bump up the amount they can borrow.

If they lie and get found out they will be declined no-one will lend to them.

noddyholder Mon 05-Oct-09 15:44:34

well the buy to lt is a tracker and went down from about 900 to 300 this year but I am not sure they even declared that property AT ALL!I am seeing them this week and don't rerally want to get invold as i think its high risk and daft at their ages.But I suppose once the credit report comes back they will see the other mortgage and investigate it This is my worry but they said I am a killjoy grin

noddyholder Mon 05-Oct-09 15:45:16

so sorry about typing need new laptop!

noddyholder Mon 05-Oct-09 15:45:20

so sorry about typing need new laptop!

JustAnotherManicMummy Mon 05-Oct-09 15:53:39

I remember back in the day someone not bothering to declare a mortgage he was on "because in my opinion it's not important".

Unfortunately a sense of righteous entitlement does not a valid lending criteria make. He was declined. There was a tantrum. All very embarrassing.

I'd leave your friends to it - but just make it clear that if it doesn't work out you cannot put them up grin

noddyholder Mon 05-Oct-09 15:59:48

God no way they would be a nightmare! I have had mortgages in th epast and thought they checked everything Will keep schtum I think.

noddyholder Mon 05-Oct-09 17:11:33

Ok if there is anyone here in teh know can you tell me Is this a fraudulent mortgage application.A friend has told me it is and I don't know whether to tell them or not as they think I'm over reacting.They are porting the mortgage from the family home sale to the new house and don't think they will gt checked out again

Noddy we are just now on a new mortgage (we have one on another property), the hoops we have had to jump through are enormous. The paperwork is horrendous. We put it down to the new FSA regulations etc etc.

There is no way your friends would get away with not declaring an existing BTL mortgage. In fact given the 'advancement' of their years I would be surprised that they can get a mortgage at all, let alone an interest only one.

noddyholder Mon 05-Oct-09 17:23:12

God I am worried as they are a couple and I am close to one of them.They come to me for advice but this time although I was sure the other mortgage would at least need a tenancy agreement as proof they told me no and I have now learned from a friend (who is an estate agent and quite old so knows his stuff)that this is fraud.The btl flat has never been let they use it as a second home so no accounts etc.They have a large deposit but if they declared the other flat they would not be leant anything imo God will see her thid week and try to explain to her He is v gung ho and thinks I'm daft but the btl mortgage is around 200k and I think the bank will deduct that from what they want to borrow now which would leave them zero

noddyholder Mon 05-Oct-09 17:23:55

loaned or lent not leant!grin

Don't panic Noddy!

The bank won't deduct £200k from the amount they want. The bank will look at their total outgoings and total income and make a balanced assessment as to whether they can afford the minimum monthly payments on both mortgages.

I don't know the intricacies of the legalities of a btl mortgage as we never had one, I guess they would be committing some kind of error if it stipulates in their btl mortgage agreement that they must let their property out, perhaps they have had an agreement with the mortgage company to allow them to use it as a second home? For example our mortgage was for our main residence and when we moved overseas we asked for permission to rent it out, as the mortgage was not a btl.

If I were you I wouldn't get involved. smile

Are they using a broker? Perhaps by using an independent broker he may be able to look at the bigger picture....

noddyholder Mon 05-Oct-09 17:40:36

They wanted to buy a second home and couldn't get a mortgage as they already had enough credit and were refused as didn't earn enough.The broker said the way round it was as a buy to let where the loan was granted on an estimate of what the rental would be.they got that mortgage and have been using in it as a holiday type home 2nd home as it were.Their joint income prob just covers the btl amount so i can't believe they can get more at their ages but ?????I have decided to def keep out of it

JustAnotherManicMummy Mon 05-Oct-09 17:40:43

It depends on the bank involved as to whether the ported mortgage would be re-underwritten. In the bad old days it would not have been. As long as the payments were being made no-one would care very much.

Nowadays it possibly would have a new credit score and affordability checks made. Certainly Abbey who we have our mortgage with will want to run a credit reference check (or at least that's what they told me. They also told me some guff which turned out to be incorrect!)

Mortgages have been regulated by the FSA since 31st October 2004 and very little should have changed for the customer. Any additional hoops are probably as a result of lender tightening up.

Re you friends because they did they're mortgage in 2005 they are protected by the FSA and have a course of redress to the broker. If a fraudulant application was made then there should be comeback to the broker if it was with their agreement, even if tacit.

Think calling not renting out a BTL property "fraud" is a bit strong.

Worst case senario they will have to live in their flat. Could be worse. Some people have lost their homes and livelyhoods.

ABetaDad Mon 05-Oct-09 17:42:15

Also, they have to be careful with tax. If they sell the BTL and make a gain they should pay capital gains tax (not much chance I know) but these things have to be declared properly.

I assess loans for a small lending organisation and my boss once said to me that not declaring other borrowings or not answering questions truthfully in order to get a loan can in some circumsances result in the courts being asked by creditors to exclude the loan outside of any bankrutcy or loan rescheduling agreement. It can also be grounds for a creditor to require immedate repayment or seizure of the property it is secured on - if it is discovered that full info was not disclosed.

Telling the whole truth is generally pretty much a given requirement in all financial dealings. TBH it sounds as though your friends are in financial difficulty already. They have very little equity, big borrowings and are near retirement age. Not an uncommon position in my experience for people in their late 50s/early 60s. Too much reliance on proerty to fund a lifestye and a pension.

JustAnotherManicMummy Mon 05-Oct-09 17:44:51

Agree with ABetaDad's last post.

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