Hi
I have been looking at the property market and would like to understand the rules around loans and whether one has to live in the property they buy. I have me so many people who have got a 90% loan and were supposed to live in their flat, but then ended up renting out their flat instead.
What is the reality around this? It seems only to be loosely followed and is there any enforcement?
Thanks
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A friend of mine did this and the bank (HSBC) found out about it - he was in serious trouble. HSBC said they had the power to call in the whole loan - it was 8million at the time. They charged him interest on the months it had been let and told him that if he wasn't back in the house within one month - they would call it.
I remember it being a nightmare for him and his family.
This was around 10 years ago - don't know if the rules have changed. The mortgages and interest are different from sole occupancy or rental, but I'm sure that there are plenty of good folk on this site who will know much more than I do - which is the story I have mentioned. Tread carefully.
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Oh you just reminded me... when I bought my flat, my mortgage also stipulated this and I asked the agent whether I should tell the bank I wasn't going to live there. She said don't say anything. Anyway, they never found out. I had totally forgotten about it!
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If its a high advance mortgage (HKMC), your unlikely to be able to let it out. The whole point of the HKMC is to help people buy their own home, not make a quick buck. Saying that, some banks will entertain a let out, providing you are upfront and honest (yes i know we're talking banks here!!). I notified my bank a while back of my intentions and they agreed providing they could vet the tenancy agreement before hand. There was no change in the int rate either.
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The bank can call in the entire loan if you breach the mortgage terms.
Also, properly advised tenants would always have their solicitor put in a clause where the property is under mortgage to protect their rights. The clause would be to the effect that if the bank were to re-possess the landlord would reimburse the tenant for relocation costs, agent's commissions, etc.
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Thanks everyone, I decided not to take a 90% mortgage and went for a 70% one instead and informed my bank that I may decide to rent. Didn't want any trouble so wanted to do things by the book.
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