'limbo' landlords being forced to let their properties get hit with huge fees

Landlord Expert
By Landlord Expert March 2, 2011 17:56

The fragile housing market has meant some owners must let their home because they are unable to sell. They might need to buy or rent elsewhere to relocate for work, or buy a bigger house for a growing family or a smaller one for their retirement.

In the meantime, they must let their current property to provide an income until the housing market picks up and they can sell.

But many of these reluctant landlords are finding that banks are barring them from letting their home. If property owners do get the go-ahead, they could be hit with hefty charges or be forced to remortgage onto a buy-to-let deal at a higher interest rate.

David Hollingworth, at broker London & Country, says: 'Banks are tightening up on accidental landlords. They want to ensure you are moving out for the right reasons and not because you cannot afford to repay your mortgage.'

Falling house prices and a lack of mortgage funding means the average time to sell a house is more than six months, according to Yourmove.co.uk. Mortgage approvals in January were 29 per cent lower than a year ago, and the low level of lending and sales is expected to continue for several months.

However, those wanting to let their home instead of sell must ask their bank for permission first, or risk committing fraud. While lenders used to be fairly relaxed about so-called 'consent to let', experts say these days it can set alarm bells ringing.

Paul Millar, 52, from Northwood, Middlesex, was staggered when Santander said he would have to pay £2,105 to let his home - a charge of 1 per cent of his mortgage borrowing limit.

The widower, whose children are grown up, says he is fed up of 'rattling round' his four-bedroom house, but does not want to sell now because the market is so weak.

'It makes sense for me to use the property to provide an income, but I couldn't believe Santander's response. The house is worth about £600,000 and I owe £180,000, so there is no risk to the bank. It is just greed.'

A spokesman for Santander confirmed that Mr Millar would have to pay 1 per cent of his credit limit if he wishes to rent out his home on a long-term basis. Alternatively, he could remortgage onto a buy-to-let deal.

Some lenders, including Coventry Building Society and Platform, will not allow people to remortgage their home onto a buy-to-let deal.

Other lenders will, but it might come at a high cost. Nationwide customers must ask the society for permission and, after this is given, pay a £50 fee. For the first six months, there is no other charge.

After six months, the mortgage interest rate will increase by 1.5 percentage points. So someone with a £150,000 mortgage on Nationwide's Base mortgage rate at 2.5 per cent would be moved up to 4 per cent. As a result, their repayments would increase from £673 per month to £792 - an extra £119 per month.

A spokesman for Nationwide says: 'This additional 1.5 per cent interest rate is commensurate with the additional risk undertaken.'

Landlord Expert
By Landlord Expert March 2, 2011 17:56

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