Can I let my property if it’s in negative equity?
Northern Ireland has a hidden housing problem – properties which are being let by landlords who, wittingly or unwittingly, are breaking the law.
Now, we have all heard of or read of landlords who don’t carry out badly needed repairs, or even minor ones.
But this isn’t another such article. Instead it’s one about the 30% of landlords who are violating the terms of their mortgage agreement by letting. Their mortgage was for a home in which they would be living rather than letting it out to others, so under the law they are guilty of an offence. It’s like using your car as a taxi without being insured to do that. They may not realise that what they are doing is illegal. Ignorance of the law is no defence, however. ‘Professional’ landlords may have problems, too. Read on.
If you are letting your property without your lender’s knowledge, permission and authorised agreement, you are violating the terms of your mortgage. Just how have you ended up in this situation? Perhaps you were unable to sell your property because it was in negative equity. In other words. its value following the 2008 collapse in property prices was/is less than the amount required to clear the mortgage. But you needed to move on, so you decided to solve that problem by letting, without reference to the lender.
As a result, you now have two problems; not only are you in negative equity, in addition you are in breach of the terms under which you were granted your loan. Bearing in mind what was happening to house prices in the UK between 2004 and 2008 – the height of the property boom – the attraction of opting to let was/is wholly understandable.
Renting your property out to others appeared to be a guaranteed means of making money through the lean times. The income from your tenant’s rent more than paid your mortgage. But it did not and does not compensate for the shortfall due to the drastic drop in property prices. So as well as having broken the law in your bid to remain solvent, you remain in negative equity.
You are not alone. Many landlords’ nice little earners have turned into a loss-making liabilities. This is true not only of ‘amateurs’ – for example, parents who have been letting out a ‘second home’ to their student son or daughter – but also of the ‘pros’ who make their income via the buy-to-let route.
Here is a true-life example of a Belfast landlord in the latter camp. In other words, an entrepreneur who owned a number of rental properties, all of them in negative equity.
By the time he got round to contacting Negative Equity NI for urgently needed help, three of the properties in his portfolio were, in particular, losing considerable amounts of money each month, even though he had tenants in them. His problem(s) arose from the fact that – using interest-only mortgages – he had bought in 2007 when prices were sky-high. But then those tumbled, leaving him with properties worth a lot less than had had paid and therefore unable to sell them. Yes, he had an income from rent, but there was no profit on his investment. Quite the opposite; he was in fact losing more and more with each passing month. The total amount he had borrowed in order to buy these properties nine years ago was just short of £560,000. It was when their market value crashed to just £276,000 that, in desperation, he came to Negative Equity NI .
It was a good job that he called when he did, for as a result of our knowledge of the law and debt management, plus our standing as a Financial Conduct Authority regulated and monitored service with a reputation as negotiators recognised and trusted by banks, they were able to come up with a solution.
And it was a very good one, for Negative Equity NI succeeded in negotiating the sale of those three properties via a one-off settlement which saw the landlord paying the bank £28,000 and the balance – £253,000 – written off.
However, Chancellor George Osborne has come up with another potentially crippling tax. Writing in The Daily Telegraph (August 21, 2015): Richard Dyson’s warning to second-home owners currently renting out such a property was: “Buy-to-let was a part of their savings plan. But it will soon be untenable. It won’t be among their investment choices. Mr Osborne has killed it.
“We now have people paying tax on zero income. We now have a tax regime that appears not to be able to distinguish between revenue and profit.
“It is a tax from Alice In Wonderland, a truly bonkers tax, a tax you would laught at if it were being applied in a Third World country by a lunatic dictator.”
If you’re a landlord in negative equity, contact Negative Equity NI. Likewise if you are someone to whom rent is paid. It could be the most valuable phone call you ever make. We offer a FREE consultation and our friendly, experienced team are ready to help you: 028 9023 6074