47 ms·

Came here for the same exact thing, I was wondering if it's actually legal to take a mortgage on a house and then rent it out to third parties.

jacquesm 12y ago
Almost all property that is rented out is somehow financed. Even big housing developments. The 4:1 leveraging the article details is actually quite mild compared to some schemes out there.
arethuza 12y ago
"I was wondering if it's actually legal to take a mortgage on a house and then rent it out to third parties" Of course it is legal - why shouldn't it be? Mind you - you have to tell whoever gives you the mortgage that it's a "Buy to Let" mortgage - but a lot of mortgage providers offer them e.g. http://www.halifax.co.uk/mortgages/buy-to-let/ http://www.halifax.co.uk/mortgages/buy-to-let/
- fennecfoxen 12y ago
  It may also affect your ability to qualify for certain government subsidies, guarantees, et cetera, depending on what your government offers.
- hackerboos 12y ago
  A lot of people are buying houses on regular mortgages moving out of the property and then renting the property out. You are supposed to inform your bank when you do this - but many do not because banks will increase interest as you are effectively converting to a buy-to-let. I don't know anyone that has informed their bank and non-enforcement of this rule is allowing people with 5-10% deposits obtain buy-to-let mortgages when normally they would require 25%. Oh and it's not legal. It's a breach of contract if you do not inform your bank.
  - arethuza 12y ago
    I don't think it's usual to describe breaking a contract as "illegal" - that's generally used for something that breaks laws.
    - hackerboos 12y ago
      I suppose in certain cases it might be classed as fraud.
  - foobarian 12y ago
    > Oh and it's not legal. It's a breach of contract if you do not inform your bank. Not legal as in against the law, or just subject to whatever clauses are there in the contract to cover that particular outcome?
gambiting 12y ago
Of course it is. A lot of people I know in the UK do it exactly this way. Either get a mortgage to buy and let, or get a mortgage to live in a house, while at the same time letting out a room or two, which ends up paying the cost of mortgage.
yourapostasy 12y ago
It is worse than you were wondering. In the US, and it turns out most Western nations with "modern" banking systems, there is either outright or quasi-governmental support for taxpayer-guaranteed mortgages. The general public, as you, are for the most part completely unaware of this. A common "business" in the US is to use various "housing assistance" programs to leverage cash for non-owner occupied housing. These debts are dischargeable in bankruptcy. Generally there are limits to about $2M aggregate and/or 7 properties, depending upon how you work the system. A great many of these "investors" are real estate brokers. Imagine if your government announced software developers could get 3-10% cash down leverage on up to 6-7 $300K simultaneous projects. If you fail, the taxpayer picks up the tab. And you don't even have to go through YC to get it. Just show that someone else sold their similar project for however much you are proposing you get funded for. One way to reform this system is to simply turn non-owner-occupied housing into non-dischargeable debt, with a 7-year phase-in on all legacy debt, and disgorging such mortgages back into the private market.
- jrs235 12y ago
  If you default, you lose the asset. The assumption is that the assets are minimally worth the value or the loans. Your comparison to software projects is way off. With mortgages there is a tangible and physical asset.
  - yourapostasy 12y ago
    A software project that actually delivers code possesses the potential to generate income in a way that residential homes do not. In that respect, granting loans on flimsy pretexts to software projects is better than to non-owner-occupied homes. If it pleases you, imagine loans to anything else that this crowd works with on a daily basis. Don't let the analogy distract you from the core thesis pointing out the perverse incentive structures raised around residential loans leading to undesirable policy outcomes. I'm very hard-pressed to come up with any other business where 4-5 figure sums of USD cash can lock in 6-7 figure values of assets, at preferential interest rates, over very long payment terms, with only consumer-grade credit ranking and formulaic "comparable value" asset analysis for loan approval. If you've ever owned a business for any length of time sufficient to talk with your business banker about credit terms, you'll immediately recognize the extreme disparity between those terms and normal business loans and lines of credit terms. It is indefensible to pledge taxpayer financial support to real estate businesses via these loan vehicles.
pothibo 12y ago
Maintenance is a non-trivial cost. And more property you own, more people you need to maintain your property. There's no silver lining in property.

jacquesm 12y ago

Almost all property that is rented out is somehow financed. Even big housing developments. The 4:1 leveraging the article details is actually quite mild compared to some schemes out there.

arethuza 12y ago

"I was wondering if it's actually legal to take a mortgage on a house and then rent it out to third parties" Of course it is legal - why shouldn't it be? Mind you - you have to tell whoever gives you the mortgage that it's a "Buy to Let" mortgage - but a lot of mortgage providers offer them e.g. http://www.halifax.co.uk/mortgages/buy-to-let/ http://www.halifax.co.uk/mortgages/buy-to-let/

fennecfoxen 12y ago
It may also affect your ability to qualify for certain government subsidies, guarantees, et cetera, depending on what your government offers.
hackerboos 12y ago
A lot of people are buying houses on regular mortgages moving out of the property and then renting the property out. You are supposed to inform your bank when you do this - but many do not because banks will increase interest as you are effectively converting to a buy-to-let. I don't know anyone that has informed their bank and non-enforcement of this rule is allowing people with 5-10% deposits obtain buy-to-let mortgages when normally they would require 25%. Oh and it's not legal. It's a breach of contract if you do not inform your bank.
- arethuza 12y ago
  I don't think it's usual to describe breaking a contract as "illegal" - that's generally used for something that breaks laws.
  - hackerboos 12y ago
    I suppose in certain cases it might be classed as fraud.
- foobarian 12y ago
  > Oh and it's not legal. It's a breach of contract if you do not inform your bank. Not legal as in against the law, or just subject to whatever clauses are there in the contract to cover that particular outcome?

gambiting 12y ago

Of course it is. A lot of people I know in the UK do it exactly this way. Either get a mortgage to buy and let, or get a mortgage to live in a house, while at the same time letting out a room or two, which ends up paying the cost of mortgage.

yourapostasy 12y ago

It is worse than you were wondering. In the US, and it turns out most Western nations with "modern" banking systems, there is either outright or quasi-governmental support for taxpayer-guaranteed mortgages. The general public, as you, are for the most part completely unaware of this. A common "business" in the US is to use various "housing assistance" programs to leverage cash for non-owner occupied housing. These debts are dischargeable in bankruptcy. Generally there are limits to about $2M aggregate and/or 7 properties, depending upon how you work the system. A great many of these "investors" are real estate brokers. Imagine if your government announced software developers could get 3-10% cash down leverage on up to 6-7 $300K simultaneous projects. If you fail, the taxpayer picks up the tab. And you don't even have to go through YC to get it. Just show that someone else sold their similar project for however much you are proposing you get funded for. One way to reform this system is to simply turn non-owner-occupied housing into non-dischargeable debt, with a 7-year phase-in on all legacy debt, and disgorging such mortgages back into the private market.

jrs235 12y ago
If you default, you lose the asset. The assumption is that the assets are minimally worth the value or the loans. Your comparison to software projects is way off. With mortgages there is a tangible and physical asset.
- yourapostasy 12y ago
  A software project that actually delivers code possesses the potential to generate income in a way that residential homes do not. In that respect, granting loans on flimsy pretexts to software projects is better than to non-owner-occupied homes. If it pleases you, imagine loans to anything else that this crowd works with on a daily basis. Don't let the analogy distract you from the core thesis pointing out the perverse incentive structures raised around residential loans leading to undesirable policy outcomes. I'm very hard-pressed to come up with any other business where 4-5 figure sums of USD cash can lock in 6-7 figure values of assets, at preferential interest rates, over very long payment terms, with only consumer-grade credit ranking and formulaic "comparable value" asset analysis for loan approval. If you've ever owned a business for any length of time sufficient to talk with your business banker about credit terms, you'll immediately recognize the extreme disparity between those terms and normal business loans and lines of credit terms. It is indefensible to pledge taxpayer financial support to real estate businesses via these loan vehicles.

pothibo 12y ago

Maintenance is a non-trivial cost. And more property you own, more people you need to maintain your property. There's no silver lining in property.