Struggling with rental property costs…

[Monkeytrousers04]

Please don’t hate me (I’ve seen landlords get an absolute roasting before). I’m an accidental landlord. I couldn’t sell my house when I moved due to a legal issue which has since been rectified (it took two years). My DP and I were buying our first house and he had a deposit from the sale of his house so we used that to buy our house and the plan was to rent mine out for a little while until I could sell it.

Fast forwards 10 years, I’ve got a lovely tenant who looks after the house really well and (nearly) always pays her rent on time. She wanted to buy the property when she first moved in and was waiting on some inheritance but then she had a stroke and had to give up her career as a solicitor so now can’t get a mortgage.

I have an interest only mortgage on the property. I got it in 2007 when they were practically giving them away. It was my first house. I put down a 10% deposit and boom, I had a house.

As I was in a fixed term when I first rented it out and as it was only supposed to be temporary, I got a consent to lease for my mortgage rather than switching to a buy to let. I renew this every year.

The rent I get is £620pcm, but after letting agent fees, insurance, rent cover, etc. I get £540 to cover my mortgage. Until September last year this was around £450 each month. I put the difference aside to pay for any repairs, etc. so I’ve never really made any money on it - it just sort of looked after itself.

My most recent letter from my mortgage lender advising me that they are increasing my interest rate again arrived this morning. My new payment will be £867. This has crept up like everyone else’s, I’m sure, but its now really starting to panic me…

I’ve tried to remortgage but I can’t as I need a buy to let mortgage and they won’t lend me one as the repayments in the current climate far outweigh the rental income I get. I don’t have any (accessible) savings with which to pay off a chunk in the hope it’d bring the payment down.

I’ve not yet increased my rent as I didn’t want to put any financial pressure on my tenant, who works for herself now. Her husband does casual work I believe.

I got an email today to say the roof is leaking and it will cost £1700 to repair.

The house has been on the market since June with no offers. I’ve reduced the price to now £7k less than what I paid for it.

I wanted to sell it to investors only as I don’t want to evict my tenant but I think I need to change this now to make it open to all potential buyers… as well as increasing my rent in the interim. The risk with both of these things is that my tenant finds somewhere else and leaves and I’m left paying the mortgage in full until the house sells.

At the same time I see fb posts everyday from people looking for somewhere to live as their landlord is selling their house so I realise that her finding somewhere else might not be that straightforward. This too worries me. I don’t want her to be homeless because of me.

So what can I do? I have been working overtime as we’re short staffed at work (I work part time but have been working full
time hours since October 2021) which has enabled me to carry on this long but this will be coming to an end soon as they’ve recruited a new person - my usual monthly pay is just £50 a month more than my new mortgage payment.

Any ideas?

I think you'll just have to put up the rent unfortunately. I don't think you have another choice. You can still be looking for a buyer too. You sound very nice but you're not a charity. Needs must.

Yes, get this totally. BTL investors will only buy a bargain now. If you sell to others they’ll more than likely want vacant possession.

you need to sell so do what you have to do. Not easy for your tenant or for your heart but you have to keep yourself financially afloat.

Move back into it yourself or sell it. In the meantime you need to talk to your letting agent about a realistic rent and what notice you need to put the rent up and fix the roof

How does the rent compare with similar properties in the area? I’d probably give the tenant notice and market it with no sitting tenant. Lots of non investors will be put off offering if tenants are in situ. You may have to cover some void months before it sells but hopefully it’ll sell quicker.

When did you last increase the rent? £620 doesn’t seem an awful lot, even in cheaper parts of the country. You should be paying tax on that amount so you are making a loss every single month, therefore you are subsidising her to live there. Clearly you are not banking on capital growth if your house hasn’t increased in value in all that time.
You need to increase the rent, although that won’t solve your immediate financial problem. Are you aware of your landlord obligations?

Thank you for all your responses.

Yes, I do pay tax on that. This years tax bill was not fun.

I’ve thought about moving back there but I have three kids now so it would be a squash but also it’s in a different local authority area and we’ll be applying for secondary school places in the autumn and don’t want that to be our address when we do. But, I’m not writing this off as an option… its my plan Z and I’m hoping I don’t get that far down the alphabet.

I will look to increase the rent. She’s on a rolling tenancy (her choice) so I only need to give her 2 months notice. On this basis the selling agent has advised I can market it with vacant possession. It’s just a bit tired that’s all and obviously it’s not in the tenants best interests for me to sell the house so perhaps doesn’t tidy up all that much when there have been viewings and this may put people off.

I’m meeting another agent there on Friday to get another valuation… I will also ask him about what he thinks the rental income should be while I’m at it.

It’s truly awful for everyone I know… I keep hoping each letter I get about the interest rate going up will be the last one, but they just keep coming! I know there are people far worse off than me… I can’t begin to imagine what it’s like for them.

I love that you are doing your best for her, thank you for being a considerate LL. Some things to try:

Haggling with brokers. After contacting four and going back with details of offers between them, we were able to significantly decrease our mortgage rate (at least for our 465 future mortgage - almost £200 a month).

Adding or removing a partner from a joint application can increase or decrease the amount they will lend you.

Waiting a bit. Rates are speculated to go down. I have seen lots of BTL additions in my inbox recently (mortgage strategy newsletter).

Asking brokers to extend the term to maximum available. My OH is 41, he will probably be getting a 33 year mortgage.

Interest only? Idk if that's really a thing lenders are even doing these days.

Talking to the tenant about what she can afford, agreeing it will be time limited, and seeing what you can do about the mortgage a bit further along in the future.

Does she have a room she can sub let on spare room? It's far from ideal but might help her afford to keep her own home. You would just need to agree to turn a blind eye to it, but not put that in writing.

If her partner does casual work and is given some notice, maybe he can try to get a lot more casual work.

Mostly, I think an honest discussion is in order as you really want to help her, so perhaps you can find a way together.

It is a rotten rental market atm.

How has the value not risen in 10 years? Surely your loan to value has increased which would reduce the costs.

Try paragon they use market tent for thier assessment not the rent you're getting xx

I don’t know. I suppose it has in a way as when it was first valued it was £10k more than I paid for it but it was felt that if we marketed it at that amount, given it was to investors only at that point, that the yield was not great. So we took it down by £5k. It’s since dropped by another £5k as there just wasn’t the interest.

I guess it’s tired. If I moved back tomorrow I’d want new carpets throughout and (in an ideal world) a new kitchen with the full set of appliances. The bathroom isn’t bad but by today’s standards could be better.

It’s a quirky house, not a family house - rooms on different floors, steep stairs, no parking, tiny outside space… but as a single woman in my late 20s/ early 30s, it was perfect for me. I lived there for 4 years. I had a lodger at one point. When I met DP, he eventually moved in with me when he sold the house he had with his ex.

Awww I wish all landlords were as kindhearted as yourself, you seem so sweet! I know it's not easy but with a hefty bill for the roof and more than likely future hefty bills for various reasons I would recommend as nice as the tenant is saying the rent has to increase. I'm familiar with the rental market and the rent has increased when I've been in the property every April due to rates increasing. Its not an easy thing to confront the tenant with, my close family is now faced with evicting the tenant from my grandparents property due to the tenant refusing to pay the rent when it went up but also for destroying the property which has upset me no end. The house is going to now just go on the market as this happened with a previous tenant too which will take the headache away from renting it again. Good luck OP 🤞🍀

I was in the same position, great tenants and it was their home for 14 years. My mortgage went up from £228 to £540, leaving us struggling every month for costs/ repairs etc. We cleared less than £500 in rent so in the red every month panicking about the boiler breaking etc.

I was worried about the tenants, but we did end up giving them notice, as selling a tenanted home has its own disadvantages. We explained our position honestly. However this now means we are paying the mortgage on an empty house until it sells completely (it sold stc once we reduced to a sensible price) You need some savings behind you.
If it helps, our tenants were really understanding and found a new, nearby property within a few weeks. We helped them with removal costs as a gesture but as you can see, all this needs spare cash.
If you have no spare cash your only option is to increase the rent which is something I just didn’t want to do. To be honest I just wanted rid of the whole thing and would never be a landlord again.

You sound lovely, if not naive.

Unfortunately you are caught in the midst of a perfect storm: sentiment change in BTL and interest rates increasing.

The problem for you is that you entered into a game with people who are less nice than yourself. These guys saw the writing on the wall when the tax changes were set in stone in 2017. I am sure they all said to themselves: if rates start increasing, I’m out.

It was going to mean their mortgages (if they had one) were more expensive and house prices were going to stagnate (at best).

You’ve got to keep your finger on the pulse with large investments.

You sound nice but you’re not an accidental LL - you chose to let out that property and have been doing so for over 10 years when you could have sold it years ago once the legal situation was resolved.

Moving on though, if you want to sell the property now as it is no longer profitable, you should serve notice on your tenant in the usual way. Hopefully they will move out in 2 months and then you can spruce the property up ( and fix the roof) with a view to putting it on the market.

You have to be selfish and put yourself first, increase the rent or start eviction process. Will it be easier to sell vacant?

You could try your local council, some are buying up properties as investments, but might be interested also as they would otherwise need to house your tenant

For some renters who are looking to get council housing, the council recommend they stay and ignore notice / S21 until they are evicted by the courts. Not nice for the landlord - costry, stressful and expensive . Some actually stop paying rent on getting S21 and delay from there to eviction can be 6 months. Hopefully this is not your situation, but to help it not be, aiding the tenant find somewhere else (If you decide to give notice) should salve this.

How are you going to pay off the cost of the property at the end of the interest only term ?

I agree with other people in the respect that at some point you need to look after yourself. Your tenant may be lovely, but she is underpaying what it costs you to keep the house. She is benefiting from you unwillingness to raise the rents.

OTOH if you want to keep the house good tenants are like gold dust. So it would be good to try and find a way that you can get more money while keeping the tenant, but tbh it sounds to me like your best option would be selling it.

2007 was a bad time to buy property (you probably don't need to be told this). A lot of stuff round my way is still under the 2007 peak it was sold at, especially new build flats.

Oh yes, and you aren't an "accidental landlord". You had 10 years to delandlord yourself.

I hate the term because no one is an accidental landlord. People become landlords by choice, or stay landlords by lack of action.