Joint buy to let mortgage partner has bad credit history

[IanD]

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...

why will her credit rating take so long to improve? Does she have a CCJ? I would be reconsidering investing with her unless I knew for certain the reason for the bad credit history.

Yes I know full debt history mainly being defaults on former mortgage

I'm a former IFA and I'm sorry to say she has no chance of getting a mortgage in today's climate. None whatsoever.

Even a couple of missed credit card payments will be enough to get you a 'decline'.

There's nothing she can really do except be as squeaky clean as she can be for the next few years. There are lots of good tips on how to go about doing this on Experian's website (making sure she is on the voter's roll/maintaining lines of credit etc)

Sorry its not better news

Hi Ian,
Depending on your own circumstances, yes, it might be possible for you to get a btl mortgage and own the property solely given your partners poor history, you could then (with appropriate legal advice) put a trust in place for your partner to take half of the proceeds from any sale. you could also set a legal agreement to split the rental profits. I am a specialist buy to let broker, please send me a private message if you'd like to get in touch to discuss at no obligation, ultimately it will depend on you being able to obtain a mortgage in your own right, and you being happy with the legalities after legal advice on the trust etc. Best regards Matt

try speaking to Tim Philpott www.cobens.co.uk/ (it doesn't look like they deal with mortgages, but Tim does and he is excellent, ask for him personally)

I think you may find a number of issues with this, but it's not my area hence why I waited for someone else to respond, but seems as if that's not going to happen.

BTW have you posted in legal?

sorry X-post

put a trust in place for your partner to take half of the proceeds from any sale. you could also set a legal agreement to split the rental profits

Blimey, that's a bit of a gamble!!!

So OP will be solely liable for the downside (mortgage repayments), but the partner is guaranteed a split of the upside (equity and rental profits)???

I would seriously, seriously counsel against such a course of action, no matter how much you trust your partner or how mush she puts towards the deposit. Please seek independent legal advice before embarking on such a course of action. (and don't use a solicitor recommended by your broker, find your own)

get a legally binding document to say she paid half?

The problem with this is that the lender would have to be told about this agreement, and it could be seen to give your partner an interest in the property. This interest could make it difficult for the lender to repossess the house in the potential case of you defaulting on the mortgage.

Admittedly, its been a while since I practiced, but certainly 'in my day' any gifted deposit (which is what your partner's share of the deposit would be if you took out the mortgage in your sole name) had to be declared and the 'giftor' had to sign a declaration that they would derive no interest in the property. Kind of defeats the object really.

"So OP will be solely liable for the downside (mortgage repayments), but the partner is guaranteed a split of the upside (equity and rental profits)???"

Yes but equally, if the partner is putting up half the deposit (admittedly we don't know the exact split) surely she should get an equal share of any profits, the downside might be the mortgage, but there has to be trust somewhere or they wouldn't be partners and he would't be asking if he could buy on his own!! Its all about what the clients are happy with given the appropriate legal advice from a practicing competent and independent lawyer, its hard on forums to add anything specific without knowing the full scenario......and any proper advice would be given with a full scenario.
This chap has asked for a way around a certain problem rather than sitting around for the next 6 years, I was just giving him a 'potential' avenue and its to be considered carefully.

Surely you wouldn't expect or advise someone to put their own money into a venture and sign away their rights to any capital appreciation profits or rental income? That would be an interesting investment, but I'm not sure it would catch on !!

Of course the lender would be made aware of any agreement, otherwise the purchase can't take place...!! There are such agreements in place, and lenders get the first charge.................

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.

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.

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

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....

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?

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.

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.

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

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.

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?

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.

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

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.

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?

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.