Can't Sell – Will Let
Posted: Friday 3 December 2010
With an increasing number of homeowners having been unable to sell their properties in 2010, they have, inevitably, been looking at alternative options. One of these is to buy without selling and to let out the present property until the market improves or at least a purchaser can be found.
The advantage of this course is that people can move on to their new properties and, for that reason, the possibility should not be discounted, but there are drawbacks and a number of issues that need to be resolved before you can pursue this option.
Firstly, your lender would have to agree to allow you to run two mortgages – one for the house that you buy and the second for the retained property that you are letting out. This will involve the lenders looking at your total income and deciding whether that supports the two mortgages. You would, of course, be asking them to include the prospective rental income in arriving at this calculation, but lenders will take a different view of the extent to which they will include unearned income of this kind and it might be that your bank or building society would decide that they wanted to change the basis of your present loan to the equivalent of a “buy to let” mortgage and there would, no doubt, be arrangement fees charged by the bank. Clearly, this is a matter that you would have to check out at the very beginning, to see whether your lender would agree to the proposal and, if so, on what terms. You would also have to bear in mind that you would be taking on a major financial commitment, having to service two mortgages. Interest rates are, at present, very low, but obviously there is no guarantee that they will continue at these levels and the only direction is upwards.
If your lenders do agree, they will insist that the form of tenancy that you use is a Short Assured Tenancy. This is an agreement for a period of not less than six months and the documentation is definitely not something that you should try to do yourself. Ask your solicitor to prepare it for you and to advise you of your rights and your obligations, as the property then has to meet the Repairing Standard and, depending on the number of people that you intend to allow to occupy it, you may need an HMO Licence, which will cause delay and considerable expense.
At a practical level, letting out your house means that you are not able to sell it for six months, so you will want to avoid the situation in which you lose the benefit of both the spring and the autumn markets. Clearly, you will lose one or the other, but you do not want to miss both. The house-selling market is less seasonal than it used to be, but the greatest activity will be in April/May and September/October. It is possible to put a property on the market whilst the tenant is still in residence, but it is not realistic to expect that it will be as tidy as you would like it to be if you were showing your own home and, of course, there is no obligation on the tenant to be co-operative when it comes to showing the property to prospective purchasers. You should, therefore, assume that you will not be able to actively market it until the tenancy has come to an end. Bear in mind also that the condition of the property will deteriorate during the period of the tenancy, so you should allow a little time for cleaning it and preparing it for sale.
There are funding difficulties to be overcome and there are risks, particularly if the tenant turns out to be a bad choice, but if your lender will agree to the total funding that is required, it is an option worth considering, because it has a huge advantage of allowing you to make the move in the property market that you wish or that circumstances have forced upon you.
