Will I be able to keep late husband’s buy to let?

[Overwhelmedandunsure]

My husband died unexpectedly a few weeks ago. Probate application has been made. No idea when it will be granted. I am sole beneficiary and executor.

Value of estate nowhere near Inheritance Tax threshold.

The main problem I have is with his mortgaged buy to let house, which is occupied by a lovely family, who have been there 5 years.

Whilst I have temporarily been able to set up mortgage payments from my account I have been told that his mortgage lender will need to make a financial assessment to ascertain whether I will be able to take out a mortgage on the property to repay his. I cannot just take it over apparently.

I have had a massive drop in family income and the rent on the property has never been increased. At present I don’t think I will meet the lending criteria, which I am sure is more stringent since interest rates have increased.

The mortgage is currently at a fixed rate, but if I was allowed to take out a new one at today’s rates the rent would only just cover the interest payments.

I do want to try to keep the house, and the tenant. I couldn’t try to sell it at present as I don’t think I have the authority to issue a notice to quit to the tenant, or put it in the market. It’s not a good prospect for a buy to let investor as low percentage gross income.

Many thing are very uncertain right now. I am trying to work out if I have any other options?

Ideas/ experiences of similar situations would be welcome.

You need a good, independent mortgage broker with experience in buy to let to talk you through your options.

You need one who will charge you for his or her time. One that doesn’t charge you is a sales rep for one line of product only.

So sorry for your loss.

Are you living in a mortgaged property, an outright-owned property or are you private renting? That will affect your options.

Have you thoroughly investigated whether there is any life insurance, pension lump sum or employers death-in-service benefit that could help pay off the mortgage?

Talk to the tenants. If you can't make the books balance and end up surrendering the property to the bank they will be evicted pretty soon by a faceless corporate new owner so it's in their interests to talk to you. They may be interested in buying the place from you if they have used their time of paying below market rent wisely. Or they may be able to agree a rent increase if that helps you qualify for a loan. Or they may be ok with moving oit without a fuss so you can sell.

Sorry for your loss x

Practically, you are going to need to explain the situation to the family and likely increase the rent. I would have an early conversation to flag a likely significant rent increase to them, it will give them the chance to assess their options. Defo see a mortgage broker who specialises in BTL. You also need to be aware of how you will be taxed - broadly you are taxed on gross income (rent) less expenses with the mortgage not being deductible. So if you had rent and mortgage being at the same level you will have costs above to meet in terms of your tax bill and maintenance costs.

You have to decide whether you want to take this on. It's a lot of work and headache running a BTL.

Surely the mortgage would be paid off by his insurance? Isn't life insurance compulsory with a mortgage? Always used to be, but not had a mortgage for a long time so unsure if that's changed.

It is not mandatory, and hasn't been for many years.

@TheSandgroper if you are ready speak with a good mortgage broker who can advise you. Rates increasing has meant that the rental stress tests have started failing, but it doesn't mean yours will.

I am so sorry for your loss 💐

I'd be wary of speaking to the tenants about the situation until you've seen a mortgage broker. As they may move out and then you're left with an empty property for months whilst probate etc is sorted out.
So get to the broker and I'd second the point about an independent one. Mine were excellent when I had a complicated situation some years ago (living abroad buying a home but needing to rent it first before I lived in it) - due to various complications he ended up just calling round until he found the ONE building society that was prepared to lend to me! He totally earned his fees!

Thank you to everyone who has replied.

My husband’s current mortgage broker has been very kind and sympathetic, but she hasn’t been particularly optimistic about finding a solution.

I think the suggestion to find a truly independent mortgage advisor is a good one. In terms of income things don’t look great. It’s hard to say what the current LTV is due to uncertain property prices, but even in today’s pessimistic market it’s probably less than 65%. It was around 50% when taken out 18 months or so ago.

In terms of paying off the mortgage, the source of repayment was to be the eventual sale of the property. It is interest only and there is no insurance policy or funds from pension to help repay it. Actually there is a very small pension lump sum, which amounts to about 6% of the sum owed, and even that is tied up in Probate. There is also some capital left from the last re mortgage, which would pay off about 10%

Ironically for a long time my husband had wanted to sell his ‘buy to let’ which was his home when we met, but the tenants are really lovely, and very settled, and had a couple of significant life events, which led him to letting them stay. I misremembered the length of their tenancy. They have been there close to 7 years.

My husband remortgaged so that he could use the capital to buy some things he had always wanted. I am so pleased that he was able to enjoy using it.

I do own my home outright, but I have teenage children still living here, and one thing I have decided is that I will not risk our home by using it as additional security for the buy to let.

Thank you for some very helpful suggestions.

I'd just emphasise this from @canfor :

You also need to be aware of how you will be taxed - broadly you are taxed on gross income (rent) less expenses with the mortgage not being deductible. So if you had rent and mortgage being at the same level you will have costs above to meet in terms of your tax bill and maintenance costs.

This will probably be a big problem even if you can get a mortgage.

Although you haven't given figures it sounds like there will be no "profit" left after you have used the rent to pay mortgage interest and other expenses. But you will still have to pay tax - you'll need to find it from your other income. (This is partly what has forced many landlords to sell up recently.)

Without giving exact figures there will be almost no ‘profit’ after paying mortgage, insurance and normal servicing/ maintenance charges. That could improve if interest rates decrease in future, but would be completely unsustainable if they increased further. I do have a small amount of capital in reserve, but it would quickly erode if I had to regularly subsidise the buy to let.

There is very little similar rental property in this area, but the rents in the few which are broadly comparable are about 35% higher.

I could pay the mortgage and have a bit of a buffer at that sort of rent, but it would be such an enormous increase for the tenant.

It seems clear that the rent they pay will have to increase if they stay, and they would have to pay the much higher current rate for any new tenancy.

A need has just arisen for a fairly minor repair. I have booked a handyman for this and it won’t break the bank, but it again illustrates that the net income from the property will be reduced as my husband will no longer be carrying out repairs himself.

I feel awful saying this but I am approaching the conclusion that I don’t want the responsibility of owning the property. Financially I would always have been better off selling and putting the net proceeds into an interest paying account, but I am devastated for the tenants, and feel like I am letting my husband down.

I will arrange to speak to the tenants soon and advise them of the likely outcome, so that they can have a longer period to look for somewhere else if they choose to do so. I won’t be able to take any formal action until probate I’d granted, which could be many months.

Sorry for your loss @Overwhelmedandunsure

the probate application that I have had to do recently took 19 weeks to be granted so if you can speak to an independent mortgage advisor in the next few weeks you still have time to consider all options.

Sorry for your loss.

I am afraid I would be issuing paperwork for you becoming the landlord and starting the process of a section 21 for the family. If they aren't paying market rent - really it would be best for you - as much as you want to be a good person - allowing them to join the council list or find something else would be better for them and less stressful for you.

Sorry that you're having to worry about disappointing the tenants along with everything else.

I feel awful saying this but I am approaching the conclusion that I don’t want the responsibility of owning the property. Financially I would always have been better off selling and putting the net proceeds into an interest paying account, but I am devastated for the tenants, and feel like I am letting my husband down.

I really don't think you should feel like this. The government has been shifting the rules around for a while to encourage smaller landlords out of the market to make way for bigger corporate landlords. That wasn't your decision, and you shouldn't feel the need to fight the tide. I'd guess that the chances are that your husband would have had to take similar action soon enough.

Just popping by to thank previous posters, and give a very brief update.

I am not much further forward in practical terms as there is no sign of Probate being granted, even though I am now within days of the department’s own ‘can take up to’ time.

I have taken advice about the possibility of obtaining a mortgage, and I just don’t meet the criteria for any of the standard lenders. When I am in a position to actually apply for a mortgage it could only be with a more obscure lender, at non standard rates, and with a hefty up front payment, and there is still no guarantee that the application would be approved. The interest rates suggested would mean that the rent would have to be at current market level just to cover it. There would be nothing left for repairs and maintenance.

I have now had the difficult conversation with the tenant, who was very understanding. She does have somewhere she could possibly move to although it does mean that her journey to work will be more complicated, her child will have to change schools and the future of their outdoor pets is unclear. I feel so sorry for her, but bless her, even she said she wouldn’t expect me to take out a mortgage on those terms.

You're very kind, OP, but I don't really see what there is to think about here. Of course you have to sell the buy to let. The tenant will be able to get somewhere else. I've been the tenant who was given notice and I fully understood that it wasn't my house and I would just have to find somewhere else, which I did. Her arrangements with her child at school aren't for you to sort out.