Western Mail Property Doctor Column #23
By admin
Issued on behalf of Emyr Pierce Solicitors
As a landlord who has invested in buy-to-let properties I am concerned about the current very uncertain state of the housing market. Would I be wise to reduce my financial commitment – or reduce the rents I am charging in order to attract new tenants?
With the market slowing down it could well prove more difficult to let properties. If landlords are concerned about a possible downturn in the market they should be reviewing their existing tenancy agreements to identify whether any of them are about to come to an end. These will be fixed-term Assured Shorthold Tenancies and it is at this stage that landlords should be looking closely at their property portfolios in order to consider reducing their exposure and possibly consider selling one or two properties – particularly if they anticipate any difficulty in re-letting them. After all, it only takes one property to remain empty for a few months for the owner to experience financial pressure. All those who have purchased properties with the benefit of Buy-to-let mortgages over the past few years have done so in a buoyant market, committing to the product on the basis that all they have to do is let the property and the rental more than covers the mortgage repayments. That, of course, is fine if the current market rentals exceed the amount of your monthly mortgage repayments. If landlords are forced to consider accepting lower rental payments this unfortunately does not have a bearing on the monthly mortgage repayments which either stay the same or, in the case of a rise in interest rates, increase. It is a condition of many Buy-to let mortgages that the rental on the property is (for example) 125 per cent of the monthly mortgage repayments. The reason behind this is that should the property be repossessed, the lender will be safe in the knowledge that the tenancy agreement is for a fixed period and happy that the rental payments will cover the mortgage repayments plus a little extra to cover their ‘administration’ costs. Should the property be let in breach of the mortgage conditions then the lender would be exposed in the event of a repossession as it would be unable to recover possession of the property until the tenancy expired, during which time the rental payments would be insufficient to cove the cost of the mortgage. If a landlord believes he may struggle to recover the level of rents required by his existing mortgages then he should seriously consider either refinancing on to terms that he is happy he can satisfy or, possibly sell to avoid any such difficulties. Landlord borrowers need to be very aware of the impact not only on their ability to repay the mortgage, but also on their mortgage conditions. If it’s a choice of no rent or a lower rent then it’s highly unlikely a landlord will leave the property vacant and turn away money. However, he should be aware of the fact that in accepting a lower rent he could technically be in breach of the mortgage conditions.
My next door neighbour wants to buy a part of my large back garden, but I still have 15 years left on my mortgage. Am I entitled to sell this land?
You cannot have any dealings with your property or any part of it without the consent of your mortgage company. If you have agreed with your neighbour to sell him the land then the first thing you must do is get the consent of the lender. They may well specify conditions, depending on the valuation of the remainder of your land. If your mortgage is small in proportion to the value of your property the lender is unlikely to object. If you have a high value mortgage you may be required to reduce the amount of your loan out of the proceeds of the sale of the land. It is a condition of your mortgage that you cannot dispose of any part of your property without the agreement of your mortgage company, or do anything that would prejudice their security.
