An unusual tenancy/buying situation

[Dave421]

One of my passions has been legal issues, I know a lot about various things and I should really post here more but have been so busy, often I only come here for advice. 

 

A strange legal issue I wasn't to understand more of are the legalities and even the potentially consequences of a potential but to let misuse with my friend. 

 

A very good friend wanted to help me get on the property ladder but perhaps in an unofficial way. With my standing, even though I'm a business owner I just have no chance. 

 

I only knew this after that my friend applied for a buy to let mortgage (really I didn't know, they said about the idea as a general mortgage). The plan is and still will be that I cover all mortgage payments, all maintenance to the house and after once mortgage is paid off, I give them 10k as a thanks and that's that. 

 

I just want to know about some of the laws surrounding this and what my friend has done for me (no intention to shaft them, they are a top friend, I just want to add the legalities to my knowledge bank). 

 

So... Firstly. 

 

Buy to let is, well, a mortgage where someone pays if off and even profits via a tennant. I, as they've even said only pay mortgage payments plus all maintenance of the property. 

 

So firstly. Mortgage companies on this basis may not be happy if they knew, but I'm seen as a tennant paying rent and the mortgage payments are down to the owner? Via my money? Is it breaking the law by them not disclosing this arrangement in advance? Or is it just nothing a mortgage provider would care about?

 

Let's say for example, I stopped paying my friend. Would same rules apply as being a tennant? Legally what would be the situation? Applying to courts for eviction? Would that still work the same way whereas even though I did sign a tenancy agreement, I have proof of our unofficial agreement. 

 

Would things always revert back to the tenancy agreement I signed? Aka still subject to same eviction laws. 

 

If the mortgage company found out, my friend would have to repay the part of the mortgage they owe in full within a certain time? 

 

If I didn't pay the "rent" would that mean typical legal action and then if I showed that the agreement was more about me paying to own the house, would it trump a tenancy agreement in the eyes of the law?

 

My friend has been awesome and they've put themselves on the line potentially to help me. So make no mistake, every last penny will go to them and more. 

 

I'm just wondering about the legalities out of interest and also posting here may help someone who is in a similar situation (unlikely that they are) but you never know what searches are made online. 

 

Cheers all, let's have the knowledge bank filled further. 

[Dave421]

My semi guess by the way is my friend has committed fraud?

 

But only the sort of fraud that would be bought to notice if payment discrepancies happened. 

 

Such as if someone lied about how much they earned a month to get extra credit. Although it's fraud, it will only be enforced if the person misses payments and more detailed checks are made (which then uncovers said fraud). 

 

In this case though the tenancy agreement could play a part? Fraud by mouth? Seen as a friend just renting to a friend via buy to let? 

 

If I'm technically legally a tennant based on the tenancy agreement being signed, would evidence to the contrary be legally enforceable? 

 

[honeybee13]

Hi. That's a long and convoluted tale.

 

I'm sorry, I'm not sure which part of the story you're asking for our help with. Please tell us more.

 

HB

[Ethel Street]

@Dave421 I have no expert knowledge on this but from what I know from friends and family who have bought on BtL mortgages it's irrelevant to the lender who the actual real life tenant might be. BtL borrowers typically buy the property with a BtL mortgage first and then advertise for a tenant once the purchase has completed. Lenders lend based mainly on what the notional rental income will be and whether it will cover the mortgage repayments, not on any actual tenant or actual tenancy agreement.

 

The property owner has one contract with the lender (the BtL mortgage) and another with the tenant (the tenancy agreement) but the two contracts aren't linked in any way. Each stands on its own.

 

I assume your friend applied for the mortgage in their own name as a BtL mortgage.

 

Or have I entirely misunderstood your question?

[Dave421]

1 minute ago, Ethel Street said:

@Dave421 I have no expert knowledge on this but from what I know from friends and family who have bought on BtL mortgages it's irrelevant to the lender who the actual real life tenant might be. BtL borrowers typically buy the property with a BtL mortgage first and then advertise for a tenant once the purchase has completed. Lenders lend based mainly on what the notional rental income will be and whether it will cover the mortgage repayments, not on any actual tenant or actual tenancy agreement.

 

I assume your friend applied for the mortgage in their own name as a BtL mortgage.

 

This!

 

Wanted to explain it a bit more this the long post but to cut it short. 

 

- friend got a BTL with no intention of letting, just letting me live there and pay MG. Unofficially once I'd paid MG and it's put in my name, I give them 10k as a thanks. 

 

- it was purely on a hypothetical basis with q's. I signed tenancy agreement once it was all done and I was informed about BTL. 

 

What's the tale honeybee13 ? 

 

Would you like to see a copy of the tenancy agreement and text messages putting validity to what I'm saying?

 

I'm just curious about the whole thing. Who knows in future I might be in a similar position myself. It's just interesting to advance my understanding. Message me and I'll be happy to show the evidence of my so called "convoluted tales" that you have chosen to moan about. 

 

Thanks to everyone else that's responded. It's evidently not convoluted for all. 

[Ethel Street]

What you describe does sound like letting to me. You are living there and have a tenancy agreement and the 'rent' is the monthly mortgage repayment that you are paying. It matters not all that you pay it direct to lender rather than paying it to your friend and he pays the lender (but remember I am not an expert on this and I'm not a lawyer!)

[theberengersniper]

I think the part that's adding confusion in your mind is the transfer of ownership once the mortgage is paid off, and the fact that your friend has entered into this BtL mortgage knowing who his tenant would be. That's not necessarily the normal course of events as Ethel has described, and I think it's thrown you a little.

 

Provided your friend has arranged their BtL mortgage by providing truthful and accurate information to their lender, then knowing in advance that you were to be their tenant and you would be paying the mortgage payment doesn't matter to the lender as Ethel points out. Any further conditions you and your friend arrange, like who's responsible for maintenance on the property, are really of no concern to the lender.

 

One thing I would certainly do though, if you haven't already, is have some form of agreement drawn up that guarantees transfer of ownership on mortgage completion. The term of a mortgage, even a short one, is more than time enough for a friendship to sour, and I would hate to see you pay for the house and be denied ownership transfer.

[Ethel Street]

@Dave421 I agree with @theberengersniper If I were you there would be a lot more things to worry me about this arrangement than how the tenancy agreement operates.

 

For starters what is the point of this at all? If you can afford to pay your friend's mortgage repayments plus all the maintenance costs and bills  plus £10k as 'thanks' (for what?) why don't you just buy your own house and get your own mortgage? With the arrangement you describe effectively you are buying a a house for your friend.  If you can afford to do that why do you say "With my standing, even though I'm a business owner I just have no chance."?

 

Why not just buy a house for yourself not involving your friend at all? Or perhaps he could lend you the deposit  you'd need if he wants to help you get on the property ladder?

 

BtL mortgages are frequently interest only. Is this an interest only mortgage? If so when the mortgage term is up in, eg, 25 years, where is the money coming from to pay off the rest of the mortgage?

 

If it's a full repayment mortgage (interest + capital) then in effect you are buying a house for him with no guarantee that he'll gift it to you in 25 years time. The evidence you have that he has agreed to transfer the house to you apparently is just some text messages. Is that the situation? They'll be unsigned and in 25 years time how will you prove they are genuinely from your friend - even assuming anyone can read text messages in 25 years time!

 

If I were in your position I would see a solicitor for advice. A solicitor would probably recommend a Deed of Trust be drawn up and your interest noted on the title deeds at the Land Registry. (Or advise you not to do it all....).

 

And irrespective of mortgage type who is going to pay the Capital Gains Tax [CGT] that would likely be payable when the house is transferred to you in 25 years?

 

theberengersniper has pointed out the risk that your friendship might sour between now and when the mortgage is paid off. But you also need to protect yourself against the risk (and you have to think about these things) that your friend dies before the mortgage is paid off and the executors of his estate have no interest in being nice to you and will use every legal loophole to avoid transferring the house to you.

 

Whatever you decide to do get it all legally signed off and documented by a solicitor.

 

Is your friend going to declare to HMRC the amount of the repayments you make to his mortgage lender and pay Income Tax on them? Or is there a tax evasion motivation here?