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I've got a query after I've ended up in a difficult spot that's left me nervous that I have unintentionally violated the terms of my mortgage. If anyone could take a minute to read my query and provide some constructive advice on how they would proceed in my position, I would be extremely grateful! Thanks very much in advance for any help you can offer.
I have recently bought a four bedroom house with the intention of living in it with my girlfriend and taking in three lodgers. Before purchase, I contacted the mortgage company asking if lodgers were permitted and they stated they would be as long as no contracts were in place. A condition that I was happy to abide by.
I realised just before the purchase was finalised that I would need a property license and promptly applied for one.
This will, of course, trigger a notification to my lender, so I contacted them ahead of time to let them know I would like to take in the three lodgers. I stated clearly there would be no contracts in place.
They said it was not permitted when I asked for a reason they said I should ring a different department. I called the different department and was told again, lodgers were permitted without contracts. I have the time and date of this phone call, so it could be retrieved for future reference.
I was then called as a follow up by the bank to say that I had been given wrong information and it was not allowed.
I called a mortgage service representative again on a general enquiry to ask if lodgers were permitted, and I was told they would be allowed as long as no contracts were in place. I asked specifically if lodgers would be permitted on a handshake agreement, and he said they would be. I also made sure to note the name of the person I spoke with as well as the time and date.
I then contacted the financial conduct authority (who regulate the bank), who have stated that if it was the bank's policy to not allow lodgers, then this would have to have been communicated clearly, fairly and in a way that does not mislead the customer.
As you can tell from my statements above, I don't feel this was the case.
I was also concerned that simply applying for a property license might be against my terms, but I checked the general terms and conditions and there was no reference to a property license. The only statement that is potentially contentious was: "you must not let out or license any part of the Property unless we have given our prior consent in writing…”. I had actually read this before taking out the mortgage and thought this meant: "must not provide a license to occupy” rather than applying for a property license. This is for the reasons below:
1.) The clause states that I must not perform the licensing. This is only ever possible with a license to occupy. With a property license, I can only apply for a license - it would be the council that performs the licensing.
2.) As providing somebody a license to occupy is similar to letting, and is used here after “let out or”, I had believed they were stating that meaning of the word to cover all the different methods of renting out rooms.
3.) Disallowing me from providing a license to occupy also makes sense with the phone conversations referenced earlier in this post. (I'm not allowed any contract including a license to occupy).
If they did mean a property license, then with reference to my conversation with the Financial Conduct Authority I feel this should have been more clearly stated.
However, I recognise that I may have missed or misunderstood something, so I'm still feeling uneasy.
I would really appreciate any of your comments and advice on the situation.
A long time I had a mortgage I think is ok if you have a maximum two lofgers and not make it into a HMO. Although you may have to license the HMO I think when they talk about contracts is the AST. Even under HMO if you live in it, you are still taking in lodgers.
The only thing you sign up is a five year license, but you also have to make changes to house like fire doors etc.
Thanks for the advice!
You have a number of issues here.
the licensing issue is separate and confusing. If you are letting out your property you may need a license. Getting one will not triggger the lender knowing but that's not the same as saying it's ok.
it is not unusual for lenders to restrict you to not letting part of your premises. The reason is it can effect the security assumptions. Personally I'm stunned they said if there is no contract it completely loses any protection over terms for their security. However if you look at their statement literally you would see they have not changed their view. A contract can of course be oral and it's hard to see how anyone could let without a contract. Hotel booking, buying goods from a shop and renting a room for a week are all governed by contracts. Courts interprete unwritten contracts all the time. So you would have a contract and so I think it's a no from the bank consistently.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Thanks very much for the advice and taking the time to read through my question. I'm sorry but I forgot to include one sentence, which is relevant to your response.
When I called for a general enquiry, I explicitly asked: "If it was just a handshake agreement then that would be okay?", to which the answer was "Yes, as long as it is not a verbal legal agreement". He explained that this was because if they had to repossess, they would need the power to evict lodgers.
In your opinion, is that just a roundabout way of saying no then? It just seems so strange that they wouldn't just say no, as the financial conduct authority requires them to state their terms in a way that is clear and does not mislead the customer. I feel mislead as I took out this mortgage thinking I would be allowed lodgers. Now I've made a big decision based on what I see as misleading information.
A diverse range of opinions on this post would be really helpful for me, could anyone reading this post help me out please? Please would you cast your votes with with up votes and downvotes on this post? Thanks in advance to anyone that can help.
Upvote: statement is misleading and it could be taken as being allowed lodgers on a handshake agreement.
Downvote: Statement was clear, I was just too thick to understand.
It is my belief that yes you are allowed lodgers BUT the issue is you want three lodgers, therefore creating an HMO. I believe if you had only 2 lodgers and you genuinely lived there too (as your only place of abode) then you would not need to apply for an HMO licence and would not need to notify your lender. I have read elsewhere that having 3 lodgers or more is quite a different matter.
Thank you for the advice landlady!
I agree with landlady1991. With only 2 lodgers you would have needed neither a licence nor to notify your lender.
All comments are made in good faith and are given to the best of my knowledge and experience but I would advise you to consult an expert before making important decisions and I accept no liability for comments made.
I agree with both of you, but still think that I should be allowed to have three and apply for a licence - please hear me out. The financial conduct authority states that if it is a companies policy not to allow lodgers or the licence application or limit the number of lodgers, this should be communicated fairly and clearly and in a way that does not mislead the customer. There's nothing in the terms that disallows a property licence, and they told me on the phone that lodgers were permitted without a contract, so how was I to know?
Do you think that a first time buyer is just expected to know this isn't allowed before taking a mortgage even though it's not stated on any of their papers?
Please any advice would be appreciated. Also as a lot of people are saying that it's okay to have lodgers but making an HMO isn't, would you please explain why it's okay for the bank to stop me from making an HMO even though they don't state it in their terms? It's difficult for me to see how the HMO licencing can be the issue when there is nothing stated in their terms against this and nothing was communicated to me. If they had simply told me "no you can't have lodgers" or the terms stated "no you can't apply for a property licence", I could have just used a different company or bought a smaller house.
Thanks so much for any further clarifications or advice!
I can see where you are coming from and possibly it was an omission on their part assuming no-one would interpret it the way you have.
To extrapolate it, although you are not suggesting this some others may 'take the mick' and develop a 10 bed HMO on a residential mortgage, taking in 9 lodgers!
Is there any way you could make it work with only 2 lodgers by raising standards - gorgeous decor with feature walls, super smart furniture, posh en suite etc and raise the rents accordingly to close the gap between 3 rooms and 2?
I'm not a mortgage expert, but I believe there is an obligation to inform the lender if you take any lodgers or guests.
My current lender has given consent to let rooms but not to grant exclusive possession. This is not the same as giving consent for lodgers.
A good teacher must know the rules; a good pupil, the exceptions.
Martin H. Fischer