Inheriting Properties with Buy to Let Mortgages

Dear David

May I begin by offering my condolences during what must be a very difficult time for you and your family.

Before you can do anything with the properties probate must be granted. Before that occurs you must pay any inheritance tax due.

Technically the mortgages have now come to an end and are now repayable on demand. The advice that your solicitor has provided generally relates more to what might happen to a spouse living in a family home, not buy to let properties/mortgages. The mortgage lender is quite within its rights to appoint LPA receivers but most generally allow a reasonable period of grace. However, it depends which mortgage lenders are involved, some are far more aggressive than others. The Mortgage Works are one of the more generous and Mortgage Express are known for being more aggressive for instance. Who are the mortgages with?

My recommendation is that you consult a solicitor who specialises in these matters, please see >>> http://buytoletconveyancing.co.uk/contact-us/

85% LTV is quite high and you may struggle to refinance the properties at that level. Therefore, you may need to sell some of the properties to release cash to reduce the mortgage requirements on the remainder.

Your income and financial status will affect the amount you can borrow but as a rule of thumb, the better mortgages are available at 65% LTV and below. The norm is around 75% and when you go over that there are less lenders willing to accept those risks, hence pricing is higher. It is unlikely that Limited Company lending will be of any benefit to you, in fact, the contrary is more likely to apply as there are less lenders operating in this market.

Meanwhile you need to consider the management and the insurance of the property portfolio. We can help you with that if you need recommendations and we will be able to save you money - GUARANTEED.

So the steps you need to take are:-

1) Consider probate and IHT
2) Consider lending options
3) Consider insurance and ongoing management
4) Consider carefully which properties you might sell to reduce future borrowing requirements and the best way to go about selling them

As founder of Property118.com I offer private Consultancy and can help you with all of these matters including referring you to various professional contacts as required, please see >>> http://www.property118.com/consultancy-mark-alexander/61522/
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Mark's said it all really, but I'd just add a couple of points:

1) presumably you have been in contact with all of your tenants, to reassure them that their tenancies will continue. You may decide to appoint a lettings manager, if you don't have one at the moment, to look after any issues with the properties while your father's estate goes through probate.

2) You or other members of your family, if you feel up to it, may wish to try managing one or two properties yourself, to learn what's involved in running a rental portfolio. This will help you decide if you really do want to retain the properties for the long-term.

3) I agree with Mark that 85% LTV across all the properties is highly geared and you should consider selling some to reduce your risk profile. However, your father presumably knew what he was doing when he took out the mortgages, so it would be useful if you could recall any conversations with him or examine his records to try and understand why the portfolio has its current structure. It is fairly unusual to have everything at 85%: the percentage usually drops on the older properties over time as house prices rise. Did he buy them all around the same time, or did he remortgage and gear up on the older properties, in order to raise cash for the newer purchases? The latter approach sounds more likely if two mortgages are due to be paid off next year. so perhaps he expanded the portfolio relatively recently in order to maximise his capital gains as house prices started to rise in 2013-14?

I would also take a careful look at the business' current cash flow: 85% LTV may mean your mortgage payments are pretty large, so could you cope if a tenant or two suddenly stopped paying the rent?

4) You don't say whether your father's estate is likely to incur inheritance tax, but you should estimate this early on, because it can cause cashflow problems: HMRC will expect to be paid the tax before probate is granted, so you can't rely on being able to sell a house or two to raise the cash to pay the tax. Unless there's a life insurance policy due to pay out, you may have to take out a short-term loan to pay the IHT.

Many thanks for both of your replies, greatly appreciated.

I think three of the mortgages are with Mortgage Express which is a little concerning if they are one of the more aggressive lenders.

To Tony:

1. All accept one are managed by agents, that one who isn't is a long term tenant and has been notified. Currently all rents are being paid into the solicitors account.

2. This may be something we move forward with, although all depends on getting the mortgages transferred/reissued I guess?

3. The 85% is probably a bit of an exaggeration on my part. They probably fall in the 70-80% marks.

It's sad as Dad seemed to be gearing down for retirement (he was only 66). According to his diaries he was planning on selling 3/4 and clearing a few others.

The mortgages are quite low, interest only payments.

4. His pensions was in trust, and the equity of all the houses doesn't equal the threshold for IHT so hopefully that wont be an issue.

I guess my main concern is just whether or not we will be approved to take over the mortgage. We all own our own properties but I know one of my siblings had problem getting their initial mortgage. Obviously without knowing each of our circumstances it will be hard to say but If they're all tenanted are the chances high of being able to get the mortgage? Or will it all be based on affordability similar to getting a mortgage for your own home? We'd be willing to use some of the pension to boost the LTV.

Reply to the comment left by "David Pearson" at "24/03/2015 - 11:25":

Hi David

There is absolutely no way that Mortgage Express will agree to you taking over the mortgages, they are not allowed to do so, they are administered by a VERY aggressive government agency called UKAR. Google UKAR to for yourself and read some of the forums to see just how aggressive they are. Also search this website for "Mortgage Express" - see search top right of this page.

I strongly recommend that you deal with probate as a matter of extreme urgency. You may want to have one valuation for mortgage purposes and another for probate purposes. Read between the lines on this!
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Reply to the comment left by "Mark Alexander" at "24/03/2015 - 11:42":

Mark said: "You may want to have one valuation for mortgage purposes and another for probate purposes".

How would you suggest, theoretically, a person went about this?

Reply to the comment left by "John Frith" at "24/03/2015 - 13:25":

Instruct valuations with a local valuer for probate purposes and make sure they are aware of the purpose of the valuations, i.e. a sale under duress. It may even be better to ask an auction house to recommend guide prices and reserves as the figures are likely to be much lower, thus minimising exposure for IHT purposes.

Apply for mortgages based on realistic open market values assuming vacant possession and the mortgage lenders will instruct mortgage valuations for this purpose, which will hopefully come out a lot higher, thus improving the availability of finance.
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David - my impression is that you may need to sell some of the properties to improve your LTV, and the Mortgage Express ones will need to be re-mortgaged if you decide to stay invested. Speak to a broker - there are several listed on this website - about your remortgage options. There is a lot of variation but a typical BTL mortgage would require 65-85% LTV, the rental income to be 125% of the interest-only mortgage payments, and the applicant(s) to have at least one earned income that is more than £25K a year. Each property is assessed on its own merits, so obviously an existing tenant with a demonstrable payment history and good credit rating will help you.

I wouldn't bother trying to stick with Mortgage Express - there are plenty of other providers.

For the property sales, you don't necessarily need to get rid of the tenants first. Talk with some estate agents in your area, as there is often demand from existing landlords to buy houses that already have tenants in situ.

Thanks Tony, some great advice there

Reply to the comment left by "David Pearson" at "25/03/2015 - 15:54":

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One thing I didn't mention, I've been meaning to go self employed full time from around May. With the mortgage issue in mind, is it best to wait for everything to be sorted mortgage wise before I do that? Using my annual wage etc..

Obviously, if we speak to an expert, these questions will be answered but it would be nice to know in advance!

Thanks again to everyone, it's been a great help.