Following on from some recent posts can I save investors from themselves! Let me make this absolutely clear. You cannot and must not use a buy to let mortgage for a HMO and by this I mean individual tenancies. There are buy to let lenders who allow sharers on ONE tenancy. Usually max of 4 tenants, occasionally 5. Some wont allow sharers at all. Theyll have other criteria such as no locks on doors - their argument being that if the tenants are on one tenancy theyll be known to each other and therefore locks arent required. Privacy locks are usually fine. These lenders sometimes dont allow DSS or students, some only allow students. These lenders dont often object if the property requires a HMO licence; compulsory or selective AS LONG AS it doesnt affect the value or saleability of the property. Similarly planning requirements such as Article 4. But always check with the broker/lender first if you are not doing a standard single let tenancy to an individual, a couple or a family. You do have oddities like Leeds who do 5 on individual tenancies but it must be declared as such as they have other criteria that must be met too. The reasons why this is so important are:- You are breaching your mortgage terms. This is serious and your loan could be called in with very little notice usually 4-8 weeks. I have seen investors have this happen and in several cases been unable to go elsewhere and that means repossession. Lenders such as MX will use this as a great excuse to call in your loan and happily call in any others you have with them too! Lenders may deem you applied for the mortgage deceptively and as such fraudulently. Again this could lead to repossession or alerting other lenders to your fraudulent activity. Most importantly in my view is the insurance. By breaching your mortgage terms you are likely to be invalidating your insurance. Your lender is a relevant third party to your insurance and your policy will undoubtedly contain a clause about breaching any associated agreements, terms or third party arrangements. You may not be concerned about what you think are small claims but liability claims can run into millions and believe me insurers will look for every way out of paying them! This can be as simple as a tenant tripping on loose carpet you had laid, breaking their neck and claiming for lifetime care to the tune of £10million. Taking out a landlords policy and stating its a HMO does not get you out of this breach. (Similarly rent to rent carries the same obligations if theres an underlying mortgage.) I see investors almost weekly doing this, trying to do this or having had done this - I think the scale is astonishing and lenders are fully aware and taking action but this doesnt get into the public domain as investors keep it quiet but I see it happen and the panic and worry and loss that ensues. As I always say this is a business so treat it like one and do it right. If your deal doesnt work on the correct finance then its not a deal. Dont risk everything by cutting corners for profit or naivety - that will ultimately only end one way.
Posted on: Tue, 18 Nov 2014 22:37:24 +0000
Trending Topics
Recently Viewed Topics
© 2015