Consent to Let and Buy to Let Mortgages

Next Property Investment Seminar and Networking Event

Readers of this blog will know that I have consistently questioned why the rates on buy to let mortgage mortgages are so much higher than standard residential ones – a differential that does not seem justified by a worse arrears experience.

Well, I am very pleased to see that the Post Office Financial Services have done some sums and realised that there must be a veritable pot of gold in buy to let mortgage lending and have come out with a more competitive rate and mortgage fee to shake up what must be a profitable market that is currently dominated by a very small number of  players.

I rather like the Post Offices 5 year fixed rate of 5.89%, not so much for that rate itself (which is OK all the same) but mainly for the “follow on” rate of 3.49% (or 2.99% above current base rate.) And the fee of £1495 is low too.

Sure, this is not great shakes compared to what was available up until the  end of 2007, but it is a well overdue move and may even force the big players to lower their rates. Who knows it may even coax Barclays-Woolwich and the likes of Santander out of their buy to let mortgage hibernation and set off yet more competition?

Not Available Through Mortgage Brokers

The Post Office product is not available through mortgage brokers, so I don’t suppose the usual brokers that many personal finance journalists  always seem to go to for a comment are going to give it a big high five, but this product is worth checking out.

(Digression -  If you are one of those journalists who are not yet aware of our work, do feel free to ask an independent, non-broker-linked-private rented-sector chap like me for thoughts on new mortgage rates. Now we have comparison sites like Moneyfacts, it’s not rocket science to do this and independent landlord experts like me and Tom Entwistle at LandlordZone are always happy to comment.)

Consent to Let – Don’t Cheat

Today, most people on standard residential mortgages who decide, for whatever reason, they want to let their property will nearly always face a higher mortgage rate to do so.

Getting your mortgage lenders consent to do this is sometimes called “Consent to Let” and whilst it used to often be Okayed for free, the higher mortgage rates on buy to let means that these days, nearly all mortgage companies will now either charge a higher mortgage rate premium on top or make you move to a specific buy to let mortgage product (which will always be at a higher rate.)

One consequence of this is that the temptation is now more enhanced for people to try to cheat by not telling their mortgage lender they have let out the property.

They do this by having post redirected (as post going to a different address from the property with the mortgage on it may lead a mortgage company to ask questions) and of course, getting landlords insurance with someone other than the mortgage lender.

The trouble is, if you get found out, it puts you in breach of your mortgage conditions, is technically fraud and you may have to face whatever penalty the mortgage lender tries to impose on you – which can be draconian. I would advise against doing this.

Dumb Lending

At a National Landlords Association event a few days ago, where I saw the excellent tax expert Carl Bayley speak, I got talking to a couple whose kids go to my son’s school and who have a very large and successful buy to let business generating about £80,000 of profit and who have millions of pounds of equity in their properties.

Just as they were about to exchange on their next buy to let, someone at the bank who was lending them the money suddenly noticed that their chunky income was all from property letting and investment income and told them that, as they did not have £30,000 of employment income, they would not lend to them after all.

No amount of upward referral of the matter would help and the purchase was lost – the bank in question even agreeing to refund their legal fees and valuation fees rather than honour the deal.

This is dumb “Computer Says No” lending at its worst and I hope is a rare aberration from this particular lender.

If you have had a bad experience at the hands of a bank or building society who should really know better, write and tell us. (I’m afraid we will never  print the name of any bank in question but I’m always interested in your stories and if LettingFocus are in discussion with the lender as part of our corporate consulting work, we may be able to raise the matter – with your consent, of course.)

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LettingFocus.com is the home of Private Rented Sector and Landlord Information.

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5 Responses to “Consent to Let and Buy to Let Mortgages”

  1. Chris says:

    Great read again, confused why somebody would have to have employment income rather than rent income as their source of money. Surely you are as likely to lose income by losing your job as to having a house or two vacant? Comes down to the fact as you said that computers make decisions, not people now.

  2. JPM says:

    Dumb Lending?

    Why wasn’t it referred up to an underwriter?
    Why didn’t the couple in question pay themselves a wage for an ancillary service to property, such as management, building works, cleaning, and so on.
    Why not create a subsidiary company, offshore, and pass a £30k paycheck through it?

  3. admin says:

    Hi JPM
    You are right, some of these options may have been available to them, though lenders are getting increasingly restrictive about the financing vehicle (company or individual application) and are doing ever more background checks too – e.g asking for 6 months bank statements rather than 3 and scrutinising payments in and out.
    Getting a mortgage these days is (and to be fair, always has been) something of a game played with the lenders who are always a few steps behind the more clever financing methods (and ways of dealing with one’s income.)
    This is, of course, one way mortgage brokers earn their crust – the good brokers know their way around lenders criteria and which lender will allow what.
    It’s for this reason that the majority of new BTL lending is still done via brokers.
    If you have a straighforward property you are buying, only a few current properties and a decent employment income (not self employed), then shop at Moneyfacts for best rates and go direct.
    If you are at the opposite end of the spectrum, then maybe consider using a broker.

  4. admin says:

    Hi Chris
    Good comment and I completely agree with you.
    Many people become landlords because it gives them a more secure income stream than suddenly finding their face doesnt fit any more at their place of employment.
    This all really boils down to poor lending and the fact that many mortgage companies simply don’t understand buy to let or if they do, they simply discern a good applicant / experienced landlord from someone who is heavily indebted or hasn’t got a clue what he is doing.
    Some lenders we consult with and work with are listening. But it may take 10 years though before more sensible lending practices are widespread.

  5. JPM says:

    But Chris, Buy-To-Let income CAN be employment income. You just need to employ yourself through a company, and use the income from the property (minus interest of course) to pay yourself via the company. As long as you declare the income for tax (and have separate bank accounts) it’s legal… isn’t it…?
    The question is surely who is the better risk, the canny buy to let investor, or the Leham Brothers employee?