Renting to parents - Mortgage company wont allow it?

[clunkbox]

For various reasons I'm moving out of the house I own, and letting it to my parents. I'm moving to a different city.

I was trying to do it properly, so I have arranged landlords insurance. I just phoned up my mortgage company (co-op) to inform them, and they have told me I can't let to immediate family members!

Obviously this puts me into a bit of a pickle, as it is really going to fk things up for both myself and my parents if I can't go down this route! My parents have already started moving stuff in, and their house is sold. I have just taken a lease on a place, and would really rather not pay rent if I don't have rent coming in from my mortgaged property.

The only solution I can see is:
A) Talk to my mortgage company and try and sort this out
B) Stay quiet, keep landlords insurance.
C) Say I'm still living there, switch to normal home insurance. Parent's pay me rent, but as if I'm just letting them a room, although the rent amount would be sufficient rent the whole place.

Nitty Gritty:
-The utilities at my new place I share with my girlfriend are all in my name.
-All my documents (car, bank, phone) will probably stay at my old address
-All my parents documents will be registered at my old house
-All utilities (apart from the phone & broadband currently) are being transferred to my parents
-I spend a night or two a month at my parents max, possibly not enough to claim to be resident.
-I just took out landlords insurance at my old house yesterday
-Mortgage company haven't been informed yet, but if they were sneaky they would notice the phone no. I called up about to inquire about it matches my mortgage details.

Anyway, thanks in advance if anybody can give me some advice.

Edit: Parents will be there for a year or two, and I'll either sell up for find private tenants after that, preferably the former.

Edited by clunkbox on Wednesday 26th March 13:35

[Sarnie]

Were they converting your mortgage on to a BTL product or just providing Consent To Lease but keeping your on your residential mortgage?

If they were converting it to a BTL mortgage then almost all BTL lenders state that it can't be let to immediate family, as it moves from a non-regulated BTL to a regulated mortgage for dependent others.

If they were keeping you on the residential mortgage then they reserve the right to enforce any CTL criteria they like as you are asking them to break the T&C's of the original mortgage.

I would talk to them to see if they can be persuaded as from the further information you've provided it wouldn't take a genius to work out from a few checks, that you were no longer living at the property......

[clunkbox]

I wonder if I stayed there one night a week I could class myself as living there? Back when I did live there I was often only there a night or two a week anyway due to working away and staying with the GF all weekend.

[Sarnie]

But it wouldn't take much for someone looking into this, now that you have alerted them to this, to check the electoral roll and see your parents registered at your address and you registered elsewhere etc etc.

Rather than trying to commit fraud why don't you just speak to them openly and honestly about the situation again. If they don't play ball then move the mortgage to someone that will.

With regards to your house insurance, if you take out Landlords insurance, when you make a claim they will want to see that your mortgage is a BTL mortgage or that your lender provided CTL. If you take out residential insurance it would be pretty easy for them to prove that you lived elsewhere......

[clunkbox]

I'm not sure if they were discussing BTL or CTL on the phone, I'm going to phone back later once I've got all my facts straight fist.

I'm not really keen on doing anything fraudulent. What I meant was, if I stay at my old house say one night a week, keep all my documents registered there (including electoral register), but my parents are paying me a significant rent, I would have two residences (one owned and one rented) in which case I would be classed as living in the house I own, but also have another residence in another city, which I rent. In this case I would cancel my landlords insurance and take out normal home insurance.

I would happily inform the mortgage company of this scenario, as long as it would be acceptable in their eyes. If that wasn't the case I would either have to convince them to let me rent to my parents, or switch to another provider. If i'm looking at the extra cost of switching mortgages I may be better just trying to sell it, as I'm not doing much more than covering my mortgage right now.

Edit: My LTV is at 81% currently too, which may screw me over for switching to a new BTL mortgage.

Edited by clunkbox on Wednesday 26th March 14:40

Edited by clunkbox on Wednesday 26th March 14:40

[Sarnie]

clunkbox said:

I'm not really keen on doing anything fraudulent. What I meant was, if I stay at my old house say one night a week, keep all my documents registered there (including electoral register), but my parents are paying me a significant rent, I would have two residences (one owned and one rented) in which case I would be classed as living in the house I own, but also have another residence in another city, which I rent. In this case I would cancel my landlords insurance and take out normal home insurance.

Edited by clunkbox on Wednesday 26th March 14:40

Edited by clunkbox on Wednesday 26th March 14:40

The key will be which property is your primary residence and staying at one property one or two nights a week isn't enough for it to be your primary residence.

Your LTV isn't going to be low enough to transfer to a BTL with anyone else. Most lenders will be flexible if you speak to them openly and present extenuating circumstances such as you not being able to transfer to a BTL due to your LTV. The swinging factor might be if you tell them that it's only going to be for 12-24 months. They might be more open to accepting it on those terms rather than an open ending proposal for the next x amount of years.....

[dtmpower]

Why did you even bother to mention it to the mortgage company ?

Surely family staying in your house is no different to teenage kids still living at home ?

[Sarnie]

dtmpower said:

Why did you even bother to mention it to the mortgage company ?

Surely family staying in your house is no different to teenage kids still living at home ?

It's completely different............his parent aren't coming for the weekend they are moving in and he is moving out........

[dtmpower]

Sarnie said:

Occupation: Mortgage Broker

[clunkbox]

Sarnie said:

The key will be which property is your primary residence and staying at one property one or two nights a week isn't enough for it to be your primary residence.

If that is the case that makes my number of choices a bit shorter. Sadly, that's my plan B gone but st happens!

Going to give them a bell and see what the craik is.

[clunkbox]

Just spoken to my Mortgage provider - they stated that they cannot give me a BTL mortgage, or CTL agreement, but they would be happy for me to let it to my parents assuming I keep paying the mortgage. Which is kinda surprising but I'm not going to argue.

So that's all good, just need to figure out if a Landlords or Homeowners insurance is the best bet.

[technogogo]

I wonder why the limit on renting to family members? Perhaps to prevent circumvention of IHT 7 year rule? Thinking of wealth transfer by payment of rents that are higher than market. Or some such. Or could be used as layering?

[Sarnie]

clunkbox said:

Just spoken to my Mortgage provider - they stated that they cannot give me a BTL mortgage, or CTL agreement, but they would be happy for me to let it to my parents assuming I keep paying the mortgage. Which is kinda surprising but I'm not going to argue.

So that's all good, just need to figure out if a Landlords or Homeowners insurance is the best bet.

Thats good to hear, much better for them to be fully aware of whats happening rather than trying to back door it. Make sure they confirm in writing.

With regards to insurance, source quotes for both and then phone them up and explain the situation and see what they say.

[Sarnie]

technogogo said:

I wonder why the limit on renting to family members? Perhaps to prevent circumvention of IHT 7 year rule? Thinking of wealth transfer by payment of rents that are higher than market. Or some such. Or could be used as layering?

It's much simpler than that, it's to prevent people taking out mortgages for people who can't get a mortgage due to circumstances such as adverse credit or insufficient income etc.

Not many people would take out a mortgage for their friends but a lot of people would do so for a brother, sister, parent or grandparent etc.

The issue is that a BTL is a non regulated mortgage as it's not secured against the applicants primary residence and is therefore classed as an investment. If you back-door a BTL for a family member then it's no longer an investment and is then classed as a regulated loan and only a tiny amount of lenders will consider a regualted BTL.

[BoRED S2upid]

If he hadn't have been so honest would they bother? Would they ever check who the tennants are? I don't think I've ever had to tell my mortgage provider who they are all they care about if being paid on time.

[Sarnie]

BoRED S2upid said:

If he hadn't have been so honest would they bother? Would they ever check who the tennants are? I don't think I've ever had to tell my mortgage provider who they are all they care about if being paid on time.

Who you are renting to is an integral part of any decision for a BTL and a lender issuing CTL.

[BoRED S2upid]

Sarnie said:

Who you are renting to is an integral part of any decision for a BTL and a lender issuing CTL.

Tenants can change every 6 months so after the initial decision to lend are they bothered who's there every 6 months or every change? I've never informed my lender. I haven't spoken to them in years.

[Sarnie]

BoRED S2upid said:

Tenants can change every 6 months so after the initial decision to lend are they bothered who's there every 6 months or every change? I've never informed my lender. I haven't spoken to them in years.

Your mortgage will have been issued on the basis that your tenants are not, and will never be, immediate family

Of course you don't need to inform the lender of a change in tenants every six months, as long as they aren't immediate family.

[BoRED S2upid]

Sarnie said:

BoRED S2upid said:

Tenants can change every 6 months so after the initial decision to lend are they bothered who's there every 6 months or every change? I've never informed my lender. I haven't spoken to them in years.

Your mortgage will have been issued on the basis that your tenants are not, and will never be, immediate family

Of course you don't need to inform the lender of a change in tenants every six months, as long as they aren't immediate family.

Interesting to know. Whats the big deal with parents or family members? I would have thought that this is a lower risk than some tenants out there!

[Sarnie]

BoRED S2upid said:

Interesting to know. Whats the big deal with parents or family members? I would have thought that this is a lower risk than some tenants out there!

I explained a few posts prior