Consent to Let denied but LTV too high for BTL

[Londonlady33]

Hi Everyone
Me and husband bought a small flat in SE London 4 years ago. 2 years ago, husband got new job which provided work accommodation which we have to live in (we pay rent for this). Because of this we started renting out our flat. Our mortgage provider provided a consent to let for the last two years, and all has been fine. I must say, after taking into consideration tax, we only just break even, but that was our intention anyway - we never wanted to be landlords!

So our tenant has recently asked if they could extend their lease for 12 months, which we agreed and signed (they're fantastic tenants), so I phoned my mortgage provider today to ask if we could extend the CTL for a final 12 months (we intend on probably selling the flat next year - mortgage fixed term ends next August). They have said no. They have said we need to change to BTL ASAP. I understand this, and would have happily done so, however, out LTV is far too high for BTL. Depending on property valuation, approx 85%. I have pleaded with HSBC to reconsider and they have said they have raised a case, where we will get a final response in 2 weeks, but it's likely they will refuse.

So my question is, what are our rights? Obviously, we can't just kick out our tenants, especially at the moment! But if we can't get a BTL or CTL I see no other option. And if we have no one paying rent, we would really struggle paying our mortgage, which would basically mean we would have to sell our flat at a pretty crappy time.

I'm kind of freaking out. And maybe we should have seen this coming, but please if someone has some advice, that would be great.

Thank you

Some other lenders will go to 85% on a BTL. You might just need to remortgage away from HSBC. When does your mortgage deal expire?

Is it likely that the value of your property will have dropped sufficiently enough to enable the LTV to be enough now that prices are dropping.

With the original consent to let, did it give a time frame? Usually they don't but when it's remortgage time you let them know again and switch to BTL if possible or just drift on to the SVR. It doesn't help you now unfortunately as you've had the conversation with them. As a pp said, look for a good mortgage broker who can hopefully help. Also your dh will be exempt from capital gains tax on his portion if you sell (look up tied workers in the HMRC guidance).

Shinesweetfreedom

Is it likely that the value of your property will have dropped sufficiently enough to enable the LTV to be enough now that prices are dropping.

I really scratch my head sometimes reading this stuff!
If the value of the property drops more than 15%, they will go into negative equity. No one will lend.

@ForensicAccountant is correct. Is value has dropped its negative equity they would be in.

Your best bet is to remortgage with someone else and at 85% in the current climate won't be easy, or sell. Prices won't go up any time soon.

Sorry to add worry to your situation, but the chance of getting a BTL at 85% without a physical valuation at the moment is slim to none. Most lenders are capping desktop valuations at 65%

@ForensicAccountant
Sorry my bad.I was getting my percentages mixed up.
Indeed as you say will go into negative equity.

Are you sure you have to remortgage? Will they not just switch you to being a BTL customer with a higher interest rate? Or have they asked you for additional equity to bring you to the LTV level they require?

Are HSBC requiring a LTV of 75%+? If you bought 4 years ago, are you sure the value hasn't increased more than you're expecting to give you more equity? Or do you have any savings you could use to reduce the mortgage.

Unfortunately consent to let is often just a temporary solution and it's never guaranteed to keep being renewed. You might have to remortgage, which unfortunately will probably involve a get-out fee from HSBC, and a much much higher rate from the new company (if you're lucky enough to find someone who will lend at 85%). Will that make it feasible to still rent it out?

Though I am unsure how you can only just break even after tax. Unless you're making more than 2k a year from it (property income allowance for 2 people), surely you're not paying any tax at all? Or is a big chunk going on a repayment part of the mortgage?

@Maroon85

Mortgage interest is no longer deductible from your rental income. If you have a high LTV and are a higher rate or additional rate taxpayer you might not break even.

If your husband's job is HM Forces, and you are living in Married Quarters, then the banks have agreed to abide by the Forces covenant, and allow you to rent it out.