I had an interesting question from a client the other day who had not so much as a dilemma but a real poser and asked for my advice.
Here’s the question and my answer:
Question: Ten years ago, we built a detached bungalow on the grounds of our house in Diss. We took out a 10-year interest-only mortgage with one of the High Street mortgage providers to pay for it.
Now the 10 years is up and the mortgage company wants us to pay it back. I know we agreed to pay into an ISA at the time, but thought as property prices were rising in Diss, we would let the property market increase, pay for the mortgage, and sell everything in 2020.
The mortgage company has given us an extension until the end of 2021 to find the money, yet we have changed our minds and do not want to do that by selling our main home yet.
A mortgage provider recommended we get a buy-to-let mortgage on the bungalow. Yet, we never got round to splitting the title deeds and the buy-to-let mortgage provider needs this before we can apply for a buy -to let mortgage. What are the likely consequences of doing this?
Answer: If you are ever planning to re-mortgage or sell your property, it is vital that you meet with your solicitor. They can outline the exact nature of the title on both properties, get the paperwork in order for you, and communicate with the Land Registry to sort it out.
If you select the option of a buy-to-let mortgage, it is imperative to appreciate what rent the bungalow could realize and whether that will cover the mortgage payments.
Also, is there independent access to the bungalow, or do tenants have to go through your own garden in order to access it? Not many Diss tenants want to live in a property that is in the gardens of someone else’s home, especially their landlord’s, thus affecting the level of rent that could be achieved
It is really significant that you are conscious that a buy-to-let mortgage means the property has to be rented out. The lender has the right to see proof of the tenancy agreement and the rental payments coming into your bank account.
I would suggest you might also like to talk to other mortgage providers, as many other banks and building societies are offering interest-only mortgages (as they make up around 7% of all mortgages in the UK). I know of some decent mortgage brokers in Diss that might be able to help and give you a second opinion.