Tenants change of circumstances has mortgage implications

[MirandaS]

My tenant has contacted me to say she and her partner have split up and he has moved out. She has two small children. Currently the tenancy agreement is in his name but she wishes it to be transferred to hers and I have asked for a letter from him relinquishing the tenancy so I can do that. Meanwhile she has spoken to social services who say she is entitled to claim full housing and other benefits and she says she needs the revised tenancy agreement as proof of occupancy.

I have always had a good relationship with this tenant and would like to keep her. The rent has always been paid on time, she looks after the property and there have been no issues. However the mortgage agreement I have with the mortgage supplier stipulates that tenants on Housing Benefits are not allowed and there is a penalty if I change mortgage supplier within the next year. It seems to me to be discriminatory and inhumane to evict my tenant when she has done nothing wrong and I am surprised it is even legal. My brother, who is a housing lawyer, says that in practice the mortgage company only care that the mortgage is paid, and nothing will happen unless I default. Other people disagree and say the mortgage company can blacklist me and damage my credit rating even if the payments are always maintained. I'd appreciate some other thoughts on this.

[Grampa]

I am not sure how the lender is going to find out if the mortgage continues to be paid on time. You should also check any insurance products you have because they may also have restrictions.

Regardless of the above before you sign this person to a new agreement you need to check that your council pay what the rent is for your property and it is not advisable to have the rent higher than the LHA/HB rates because you will spend all your time chasing any shortfall.

You can check the rates in your area here,

http://www.rla.org.uk/landlord/guides/local_housing_allowance_rates.shtml?LHACamp&gclid=CPKa74Ps5bwCFc_MtAodpW0Apg

I would also advise you get a guarentor

[MirandaS]

Thank you very much Grampa; that is very helpful. Assuming those are weekly rates it looks as though the rent does fall within the threshold, and there are no insurance products implicated.

If the tenancy was in her sole name the father would be the obvious guarantor as I would expect him to continue to take some responsibility for his children's welfare. That being the case, I am now considering whether it may be better to draw up a joint tenancy rather than asking him to relinquish his. That way they would both be liable and that may be sufficient to satisfy the council on the understanding that he is now absent. It also allows for the possibility that they might kiss and make up.

[Melboy]

I would try for someone other than the Father like her Father or Mother perhaps? Responsibility tends to go out of the window when it comes to relationship breakdowns so I wouldn't take what your suggesting as a solid committment.

If you are going to have a rent payment guarantor then it has to be somebody who has assets to cover the rent payment guarantee.

I normally would only go for a property owning guarantor.

Regarding insurances if you go down the DSS route it is advisable to double check your insurance policies as from what you have said they were renting on a private basis previously.

I agree with your Brother regarding mortgage payments etc. Yes, there is a risk but it is slight and as long as your mortgage payments are up to date who is to find out.......unless of course you totally rely on the rent to cover the mortgage you have to pay every month and any non payment will leave you fianancially strapped to pay?

[MirandaS]

Thanks Melboy, that's given me a few things to think about.

My suggestion that she might wish to share the tenancy with her ex went down like a lead balloon, so you may be right about their relationship. But she's an EU National, and her family are overseas, which complicates things regarding the guarantor. Meanwhile I am still waiting for him to contact me over transferring the tenancy and the deposit to her. If I don't hear from him within a few days I suppose I'll have to serve him notice, which could be awkward as he hasn't done anything wrong either.

The only insurance policy I have is for buildings and I don't recall any conditions pertaining to the tenant's status. Contents is her responsibility and I have no other policies.

It's a low value repayment mortgage and not too costly. In extreme circumstances I could switch it to an interest only mortgage which would make it very inexpensive but things would have to be very bad for a long time for that to be necessary.

This is what I find so bizarre about these conditions. They make no provision for personal circumstances and don't allow landlords to take responsibility for managing the risk. If I can I will avoid lenders that impose a lot of unreasonable conditions in the future

.

[Richlist]

In my experience its not at all unusual for mortgage lenders to stipulate no letting to people in receipt of housing benefits.

Mortgage Express, Woolwich Direct & West Brom are just a few that have that requirement. It makes perfect sense as presumably there is a much higher risk of the tenant not paying the rent and consequently you not paying the mortgage.

Rules are there for a reason. If you choose to ignore them you do so at your peril.

Its would be easy for you to issue an S21 and find another tenant that complies with your mortgage terms & conditions.

[MirandaS]

Thanks for the different point of view Richlist. It's good for me to think of things from different angles.

I take the point about rules, but I also think that rules that are applied indiscriminately can be self-defeating. Irrespective of what happens with the tenant, there isn't any risk that I won't pay the mortgage and the mortgage lender has had enough information to discern that.

I'm now planning to change lender as soon as I can do so without penalty. The more I think about it the better idea it seems to be, and I'd prefer the greater sense of self-determination. The LTV ratio has shifted quite a lot on this property and I should be able to get a better deal.

[Richlist]

I doubt you will find a mortgage lender that allows letting to people in receipt of benefits.

Mortgage lenders are not the only group who don't allow benefits tenants,

If you have leasehold property, most of the freeholders/ managing agents also don't allow lettings to benefits tenants either.

As a property owner I also don't like the idea of a property next door or opposite me having benefits tenants. I already have the situation with some of my properties and it definitely lowers the tone of the area and creates problems that might not exist with non benefits tenants. As you can tell .....I don't like em much.

[Melboy]

Also your letting to an EU National carries it's own problems ( rent guarantor for instance ? ) as many people have found out. Lot's of related stories doing the rounds on forums about EU & Oversea's tenants causing problems for landlord's .

If you have a buildings only insurance then I can tell you that I don't know of any insurance company that wouldn't want to know that your tenancy has changed to a DSS tenancy.

Insurance companies have the distinct reputation of NOT paying out in the event of a claim for the slightest excuse.

I have experience of this happening.

[Carryon Regardless]

Not so simple.

There are categories of T's who may be receiving benefits that aren't, in my view, a higher risk category to us as LL's.

Retired with housing assistance, in fact is a state pension a benefit that's claimed ?

Long term, and genuine, claimants of sickness benefit.

Those on low income can receive state assistance, a benefits top up if you like.

Personally I don't view these catagories, I don't refer to individuals as anyone 'can' be a git, as risky. I can even see that they are better business for us than a worker in many cases.

Then, how are we to know anyway? I have never been informed by a state department (not referring to the USA here) that any T is a claimant. So we are totally dependant on the honesty of the T, unless others can educate me.

If a T loses his employment, and we are aware, are we supposed to hoof 'em out? As that can take many months we would be at risk with insurance and mortgage companies anyway, and beyond our control. Unless of course we are able to demonstrate that their terms are unfair (sounds like an expensive battle that one).

I just get on with it in my own style and ignore the unrealistic conditions imposed.

[Melboy]

In fact is a state pension a benefit that's claimed ?

No it is paid to you after all your NI contributions meet the qualifying years which is currently 30 years of paid up NI

You may defer it it if you wish to build the payable sum to you. ( if your daft that is )

Your State pension is not taxed at source but will count towards any other income that is taxable and should you exceed the current upper limit of allowance then your State pension will reduce accordingly.

You can tell I am almost an expert on this matter but to make it clear anyone who can survive on a State Pension I can only wish them them the best of luck because it wouldn't cover the average persons financial outgoings and it certainly wouldn't cover mine.

[Richlist]

Not so simple.

There are categories of T's who may be receiving benefits that aren't, in my view, a higher risk category to us as LL's.

When I refer to benefits I mean housing or unemployment benefit.

I can even see that they are better business for us than a worker in many cases.

i) Not if you want a home owning guarantor (they are unlikely to be able to supply one) or

ii) Not if you want Rent Guarantee Insurance ( they wouldn't qualify/meet the criteria).

iii) Not if you want a lettings agent of your choice.....many lettings agents just don't deal with people in receipt of benefits or local housing association tenants.

Then, how are we to know anyway? I have never been informed by a state department (not referring to the USA here) that any T is a claimant. So we are totally dependant on the honesty of the T, unless others can educate me.

Thats no problem. If you ask them and they tell lies they will fail the reference checks and loose their admin fee.

If a T loses his employment, and we are aware, are we supposed to hoof 'em out?

Yes. Through the normal process.

As that can take many months......

Yes it takes as long as it takes thru the legal process. Nobody is likely to be penalised for following the legal process.