# Negative Equity, Job Loss, Leasing to the Council for 10y but will lender agree?



## Ms2011 (30 Mar 2011)

I am looking to lease my house the council for 10 years.  

I will be out of a job in a few weeks and my house is in negative equity so selling up isn't an option. 

I am not in arrears at the moment but I'm sure I will be as I will soon be living of job seekers for awhile at least. 

I don't want default on my loan and damage my credit plus I would like an asset to pass on to my kids so I want to hold onto the house if possible.

Leasing back to the council will solve a few problems for me, I will have a lump of my mortgage paid every month for 10 years and I can manage the surplus even on job seekers plus I can leave where I live now and set up somewhere else.

The only problem I can see with this is will my lender KBC allow me to lease the house out for 10 years.  I need their consent before I can do this.  I have emailed them my situation and am waiting on a response.

Basically I'd like some opinions on what my chances are of my lender agreeing to this and if they say no is there anyway I can negotiate with them?

If I were a lender I would welcome the chance of a guaranteed long term payment every month but then again I'm not a mortgage company and they don't think like ordinary folk!!!


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## Ms2011 (1 Apr 2011)

Any experiences??


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## netz (2 Apr 2011)

The council will not automatically accept your house for lease. Usually the requirement is that you already have a tenant in your house who is currently on the local authority housing list and is in receipt of rent allowance (rent allowance clause is not a requirement for all councils).

As far as Im aware, anyone who has been renting privately for a number of years with/without rent allowance (AND HAS BEEN ON HOUSING LIST) can then apply to go on R.A.S. (rental accommodation scheme) whereby the local authority will ask the landlord to enter into a contract to lease their house to them. 

The council will then inspect your property, and its a harsh inspection. Your house has to be S.E.I. tested and certified which is a costly process. 

Forget about a ten year contract, my sister got a 3 year contract from Fingal for her house - to get this agreement she had to paint the whole place, replace 2 windows that were slightly faulty, install electric smoke alarms, replace carpets on stairs, insulate attic and loads of silly stuff that was on the inspection report like remove leaves from garden! And they reduced the rent she asked for too. Her tenant was receiving 900 on rent allowance - 3 bed house, for their family with 2 kids which was what was tendered on the contract but when the contract arrived to be signed council said rents had fallen so she was only getting 800 for 3 years. She told them to shove it, the tenant would have to vacate ASAP and she would get another family in. They rang her back within a few mins to say there was a mix up and she would be getting €900, and sent a new contract straight away. 

Be careful in your choice and remember you will have to pay rent in a new place too, and you will not get rent allowance as you own a property.


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## ajapale (2 Apr 2011)

Moved from Mortgage arrears, personal debt & negative equity to  Property investment: Landlord and Tenants Rights  which is where this type of question is discussed on AAM.

aj
mod


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## ajapale (2 Apr 2011)

netz said:


> The council will not automatically accept your house for lease.



Thanks netz for you very informative post!

aj
mod


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## Ms2011 (3 Apr 2011)

netz said:


> The council will not automatically accept your house for lease. .......


 
Thankds for the reply Netz. This the the leasing I am interested in, is this the same as what your sister entered into because the minimum leasing period is 10 years?:

Lease Agreement
Term
· 10-20 years
Rent
· Rent is guaranteed and paid monthly in advance and is calculated up to a maximum of 80% of the current open market rent for the property
· Periodic rent reviews
· No rent collection responsibilities
Cost Saving
· No rent loss due to vacant periods
· No rent arrears
· No letting fee
· No advertising costs
· No NPPP charge
· No PRTB tenancy registration charge
· Reduced maintenance costs
Properties Required
· New or existing properties in excellent condition
· 1, 2, 3 and a limited number of 4 bedroom houses and apartments
Tenant Management
· Local authorities responsibility - Tenants Management
Maintenance
· Local authorities responsibility - Maintenance Management
Structural Maintenance
· Property owner’s responsibility - Structual Management
Furnishings
· Not Required - Furnishings
Selling your property mid-term
· The property can be sold on condition that the lease agreement is transferred to the new owner
End of Term
· The property will be returned in the same condition as at hand-over, save for fair wear and tear
Documents Required
· BER Cert (to council requirements)
· Tax clearance cert
· Lender’s consent


My house has just recently be renovated, painted, new kitchen, new double glazed windows, new blinds, attic insulated, boiler serviced and passed etc. so I don't mind the property being inspected.
I have sent letters to the tax office for a Tax Clearance Cert and to my mortgage company for consent to lease the house (do you foresee any problem there??). I will get a BER Cert if I get the ok from the council and the mortgage company.
I have a lum sum of money coming to me which I plan to use buying a new house with no mortgage so I don't mind paying excess of my current mortgage repayment on my house less the rent I get from the council as that will be easily affordable. The lum sum wouldn't be enough to pay off my negagtive equity but enough to buy something decent in the country to live in and do up.


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## Ms2011 (3 Apr 2011)

ajapale said:


> Moved from  which is where this type of question is discussed on AAM.
> 
> aj
> mod


 
Thanking You!!


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## netz (3 Apr 2011)

Ms2011 said:


> This the the leasing I am interested in, is this the same as what your sister entered into because the minimum leasing period is 10 years?:



Similar tender, but not 10 years only 3, plus maintenance claus saying owner was responsible for maintenance, think it was a % of repairs though. Which Co. Council - hers was through Fingal Co Council - rules may differ slightly with different councils. The agreement you have posted sounds ideal in principle. The consent from your mortgage company might be a problem for you, but you should have a copy of the original mortgage contract, if not your solicitor will. It will be written on this contract somewhere if you can lease your property with or without permission. If you do not need permission, a certified copy of your mortgage contract with this highlighted is sufficent for council. Good luck with this, it sounds like a really good plan, hope it works out in your favour!


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## sunnydonkey (3 Apr 2011)

In principle it sounds a no-brainer for the Lender, but they might not see it that way. The clause "The property can be sold on condition that the lease agreement is transferred to the new owner" might cause them difficulties as in the event of a default by you, the lender could sell the house but only with the Council sitting tenant in place, thus reducing its value.
The best way to approach it might be to tell them that you are likely to head into arrears in the coming months but that you see a solution (the one you propose). Perhaps they might want that the council payments be made directly into their account , which would certainly give them a good measure of security.


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## Ms2011 (3 Apr 2011)

netz said:


> Similar tender, but not 10 years only 3, plus maintenance claus saying owner was responsible for maintenance, think it was a % of repairs though. Which Co. Council - hers was through Fingal Co Council - rules may differ slightly with different councils. The agreement you have posted sounds ideal in principle. The consent from your mortgage company might be a problem for you, but you should have a copy of the original mortgage contract, if not your solicitor will. It will be written on this contract somewhere if you can lease your property with or without permission. If you do not need permission, a certified copy of your mortgage contract with this highlighted is sufficent for council. Good luck with this, it sounds like a really good plan, hope it works out in your favour!


 
Thanks again Netz.  I think I know the lease your sister is entering its for a shorter term and she will get a bigger % of rent than I as she will retain responsiblity for maintenance etc. on her property, the one I'm interested in is a longer term and for less % of rent as the council will effectively become the landlord to the property and be responsible for tenants, maintenance etc., my only responsiblity with the property will be structual.
I must take out my mortgage contract and read it throughly to see if there is any mention of leasing, thanks for that pointer.
Fingers crossed that all the piece of the puzzle fall into place and I might have a chance of moving forward with my life


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## Bronte (4 Apr 2011)

I don't get why the council need the lendor's consent? They don't own the house and have no say in what you do with the house.

OP there are some other posts on here about renting to the council and it was not all plain sailing.  

With your banks consent they could let you sell in negative equity.  Would that be a better option for you?


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## Ms2011 (4 Apr 2011)

sunnydonkey said:


> The best way to approach it might be to tell them that you are likely to head into arrears in the coming months but that you see a solution (the one you propose).


 
Yes this is exactly what I wrote in my letter and it isn't a lie, I will be redundant by the end of July  but this plan would solve that problem for me.


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## Ms2011 (4 Apr 2011)

Bronte said:


> I don't get why the council need the lendor's consent? They don't own the house and have no say in what you do with the house.
> 
> OP there are some other posts on here about renting to the council and it was not all plain sailing.
> 
> With your banks consent they could let you sell in negative equity. Would that be a better option for you?


 
I don't understand why they need the lender's consent either but I had a good read of my mortgage agreement and it does state that I would need the lender's written consent to lease out the property (according to section 18 of the conveyancing and law of property act 1881).
Could I really sell in negative equity?  That would be the ideal solution for me but I didn't think a bank would even consider this, my mortgage is my only debt aside from day to day stuff like utilities etc.  How would I go about approaching my bank with this suggestion?


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## mro (5 Apr 2011)

Don't forget you will have tax liabilities also


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## Ms2011 (5 Apr 2011)

mro said:


> Don't forget you will have tax liabilities also


 
What tax liabilities would I be facing??
I know I will lose my mortgage relief but what other taxes will I be liable for?


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## mro (5 Apr 2011)

Tax will need to be paid on any profit made from letting. 
Just remember that just because the the rent is not covering the mortgage does not mean you wont have to pay tax. 
At the moment you can only write off the interest repayments (plus some expenses) against the tax but not the capital repayments.


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## Ms2011 (5 Apr 2011)

mro said:


> Tax will need to be paid on any profit made from letting.
> Just remember that just because the the rent is not covering the mortgage does not mean you wont have to pay tax.
> At the moment you can only write off the interest repayments (plus some expenses) against the tax but not the capital repayments.


 
Ok thanks, good to know!!


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## Ms2011 (7 Apr 2011)

Well I got noification from the council today that they are not interested in my house.
This is so frustrating, I'm trying my best to do things right but keep hitting a brick wall, it's soul destroying


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## Bronte (8 Apr 2011)

Ms2011 you might be better off, if you look at other threads you will see that renting actually costs a lot of money in taxes etc.  

You can still always go down the route of renting yourself but before you do this you should learn more about it.  

If you lose your job can you stay in the house and the government will help you with your mortgage.  Where were you planning to move to if you had rented the house?


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## Ms2011 (8 Apr 2011)

Bronte said:


> Ms2011 you might be better off, if you look at other threads you will see that renting actually costs a lot of money in taxes etc.
> 
> You can still always go down the route of renting yourself but before you do this you should learn more about it.
> 
> If you lose your job can you stay in the house and the government will help you with your mortgage. Where were you planning to move to if you had rented the house?


 
Yes my partner and I were planning to buy for cash out of our 12 year redundancy (we're both being let go from the same job but my partner has another job lined up) so we'd have no mortgage on the new house and then rent out our existing house.  Ideally we'd like to sell and move on but we couldn't pay the negative equity on the house so this is the next best thing.
Renting is kinda scary for me but I might have no choice but to bite the bullet and do it.
My friend has recently rented out her home through a letting agency so I'm watching closely to see how she gets on, I've 4 months before I have to make decision either way.


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## cnu (11 Apr 2011)

Hi Ms2001,

Can I ask if the council initially expressed interest and then they said no after inspection? or they simply said "no" even without inspection?

Thanks,
Cnu


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## Ms2011 (11 Apr 2011)

cnu said:


> Hi Ms2001,
> 
> Can I ask if the council initially expressed interest and then they said no after inspection? or they simply said "no" even without inspection?
> 
> ...


 
I approached them, they refused without inspecting the property, the only interest they showed was to asked for the address.
This was their response:

_The above property has been assessed for inclusion under lease arrangements for the provision of social housing._

_At this point in time the Council does not have a requirement for this property.  Your interest will continue to be noted and should circumstances alter you will be contacted._



_Yours faithfully,_


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## cremeegg (13 Apr 2011)

Ms2011 said:


> I approached them, they refused without inspecting the property, the only interest they showed was to asked for the address.
> This was their response:
> 
> _The above property has been assessed for inclusion under lease arrangements for the provision of social housing._
> ...



I would suggest that if you wish to let your house to the council under the RAS scheme the best way to go about it is to let the house yourself to a tenant who is not on RAS but entitled to be. That is some one who has been in receipt of rent allowance for more that 18 months, (you will need to check exact rules more thoroughly).

When you have a suitable tenant in place, they can then apply to the council to go on RAS.

I did this sucessfully and the inspection was fairly cursory, I suspect because the tenant wanted the house, the location suited her.

However RAS is no huge advantage to the landlord. The rent is low and be careful what is meant by guaranteed. In my case the rent is guaranteed, that is the council guarantee to pay the rent due. The contract is for 3 years. However the council can give a months notice at anytime. In practice all I am guaranteed is a months notice.

Having said that I am happy with RAS as I get paid on time every month and the tenant gets some social welfare benefit as well.

Regarding the tax clearance cert you mentioned. I dont believe the council is entitled to ask for this unless the rent is more than €10,000 per annum.


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## cnu (13 Apr 2011)

Ms2001 - Thank you.

cremeegg,

When u r saying "rent is low" how low is it from the average-market-rate. Say if the average-rent is 1000 how much do usually council pay?

Also do they negotiate - given ECB interest rise and the job conditions?

thanks in advance!


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## Ms2011 (14 Apr 2011)

cremeegg said:


> I would suggest that if you wish to let your house to the council under the RAS scheme the best way to go about it is to let the house yourself to a tenant who is not on RAS but entitled to be. That is some one who has been in receipt of rent allowance for more that 18 months, (you will need to check exact rules more thoroughly).
> 
> When you have a suitable tenant in place, they can then apply to the council to go on RAS.
> 
> ...


 
It's not really the RAS scheme I was looking for, it was more the long term leasing ie. 10 - 20 yrs.  This suited me because I don't want to be a landlord but as with alot of people I want to move but can't sell, under this scheme the council would become the landlord for 10 - 20 yrs for my property, all I would be responsible for would be structural things.  Alas, it wasn't to be!!


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## cremeegg (14 Apr 2011)

cnu said:


> Ms2001 - Thank you.
> 
> cremeegg,
> 
> ...



The RAS contract says that the council have the right to review rent in light of market conditions. They did this last year and reduced rent to €750. In my opinion €800 or €850 would be a market rent. I tried to negotiate but they told me to take it or leave it.

I doubt that they would consider rate rises as relevant. Although the rental market has firmed up since last year, maybe I will go back to them.


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