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Higher rent with cashback to tenants, to boost mortgage lend amount?

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    Higher rent with cashback to tenants, to boost mortgage lend amount?

    (I have never heard of this before and will be asking my accountant next week; to me it sounded a little odd but our quite principled IFA said it was something they've seen a few times)

    We bought a house for cash a while back when cash-rich and rent it at to people we want to support at a preferential rate as a sort of social enterprise thing, i.e. let's say the market rental rate is £500pcm and we actually charge £250pcm.
    We could now do to get some of the cash via a mortgage but the very low yield is likely to cause issues with lenders e.g. we are looking so far at best-case 45% LTV whereas without this issue there are very good 75% LTV products out there.

    In our meeting with our IFA, he said that in this case he has seen people increase the rent but then do some kind of cashback with the tenants. For instance we up the rent to £350pcm but give them £100 Sainsbury giftcard each month. He didn't exactly say we should do this but brought it up as a viable option he would not have an issue with.
    It seems a little weird to me but obviously you do get cashback deals on loans, mortgages, etc so maybe not.

    - Has anyone here come across this idea before, or even been involved?
    - Does it sound legit or dubious to you?
    - Would this be something we could actually put in the rental agreement?
    - Is there a reason that giving a voucher is better than just cash?
    - How would it affect the tax position? Seems to me we'd be increasing our taxable income £1000pa since I doubt you could write this off against income

    Now, I can see one could circumvent this entirely and simply raise the rent £100pcm and give the tenants £100pcm out of one's own pockets. There is a £3k IHT allowance and less well known perhaps, you can give monthly/regular payments to anyone as long as it comes as part of your taxed income not your savings for instance if you know someone who is really struggling you can give them £200pcm as long as it doesn't affect your standard of living.
    But this option would be totally based on mutual trust you would give the money after raising the rent A more official approach seems prudent but is it really above board?
    Originally posted by MaryPoppins
    I'd still not breastfeed a nazi
    Originally posted by vetran
    Urine is quite nourishing

    #2
    Originally posted by d000hg View Post
    (I have never heard of this before and will be asking my accountant next week; to me it sounded a little odd but our quite principled IFA said it was something they've seen a few times)

    We bought a house for cash a while back when cash-rich and rent it at to people we want to support at a preferential rate as a sort of social enterprise thing, i.e. let's say the market rental rate is £500pcm and we actually charge £250pcm.
    We could now do to get some of the cash via a mortgage but the very low yield is likely to cause issues with lenders e.g. we are looking so far at best-case 45% LTV whereas without this issue there are very good 75% LTV products out there.

    In our meeting with our IFA, he said that in this case he has seen people increase the rent but then do some kind of cashback with the tenants. For instance we up the rent to £350pcm but give them £100 Sainsbury giftcard each month. He didn't exactly say we should do this but brought it up as a viable option he would not have an issue with.
    It seems a little weird to me but obviously you do get cashback deals on loans, mortgages, etc so maybe not.

    - Has anyone here come across this idea before, or even been involved?
    - Does it sound legit or dubious to you?
    - Would this be something we could actually put in the rental agreement?
    - Is there a reason that giving a voucher is better than just cash?
    - How would it affect the tax position? Seems to me we'd be increasing our taxable income £1000pa since I doubt you could write this off against income

    Now, I can see one could circumvent this entirely and simply raise the rent £100pcm and give the tenants £100pcm out of one's own pockets. There is a £3k IHT allowance and less well known perhaps, you can give monthly/regular payments to anyone as long as it comes as part of your taxed income not your savings for instance if you know someone who is really struggling you can give them £200pcm as long as it doesn't affect your standard of living.
    But this option would be totally based on mutual trust you would give the money after raising the rent A more official approach seems prudent but is it really above board?
    For one I wouldn’t be recording the cash back in the books.....
    As for the mortgage company. **** ‘em. They’re never going to dig any deeper and if you’re not in arrears they don’t care.

    However.... if the tenants are on benefits don’t do it. That would likely be entering fraud territory. Unless they declare the gift to the benefits office (they won’t will they?)
    See You Next Tuesday

    Comment


      #3
      Originally posted by Lance View Post
      For one I wouldn’t be recording the cash back in the books.....
      As for the mortgage company. **** ‘em. They’re never going to dig any deeper and if you’re not in arrears they don’t care.

      However.... if the tenants are on benefits don’t do it. That would likely be entering fraud territory. Unless they declare the gift to the benefits office (they won’t will they?)
      Fair point. I don't know if you'd be right regarding benefits but that's a good comment too though I suppose that's their issue to declare (in my case they aren't claiming)

      Sent from my ONEPLUS A6003 using Tapatalk
      Originally posted by MaryPoppins
      I'd still not breastfeed a nazi
      Originally posted by vetran
      Urine is quite nourishing

      Comment


        #4
        If you took a 45% LTV mortgage, would the rent you charge cover the payments?

        Comment


          #5
          Originally posted by ladymuck View Post
          If you took a 45% LTV mortgage, would the rent you charge cover the payments?
          If I took a 75% mortgage, the rent would cover the interest and my costs. Mortgages are disgustingly cheap and houses are very inexpensive up here (5 figures)

          Sent from my ONEPLUS A6003 using Tapatalk
          Originally posted by MaryPoppins
          I'd still not breastfeed a nazi
          Originally posted by vetran
          Urine is quite nourishing

          Comment


            #6
            Surely the BTL mortgage company would look at the market rate for the rent when determining whether the loan amount would be covered by expected rent, and not accept some arbitrary dreamer rent achievable put forward by the loan applicant.

            Loan applicant: "Oh we know the market rate for rent for this type of property in this area is only £500/month but we intend giving the house a fancy posh name so we can charge £700/month."

            BTL mortgage provider: "Oh in that case no worries, your loan is approved."

            Sound likely?

            On the other hand some lenders want to see that the loan is covered by more than the rent for affordability during voids in the rent when the property is empty, so if you can show you can cover say 150% of likely rent through actual rent plus supplemental means (income or savings) then a higher LTV may be achievable without having to mess about with dodgy schemes to get an artificially high rent.
            Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

            Comment


              #7
              You'll be paying a lot more tax due to the rent increase. I doubt the 'cashback' is an allowable expense.

              Comment


                #8
                Originally posted by d000hg View Post
                If I took a 75% mortgage, the rent would cover the interest and my costs. Mortgages are disgustingly cheap and houses are very inexpensive up here (5 figures)

                Sent from my ONEPLUS A6003 using Tapatalk
                I meant the rent you actually charge, not the market value.

                If what you charge covers the costs with extra wiggle room (150% as mentioned above) then there's no need to enter some scheme to fudge the figures.

                Comment


                  #9
                  Originally posted by ladymuck View Post
                  I meant the rent you actually charge, not the market value.
                  so did I. Even the discounted rent we currently charge is enough to service a 75% mortgage interest only.



                  Sent from my ONEPLUS A6003 using Tapatalk
                  Originally posted by MaryPoppins
                  I'd still not breastfeed a nazi
                  Originally posted by vetran
                  Urine is quite nourishing

                  Comment


                    #10
                    Originally posted by Hobosapien View Post
                    Surely the BTL mortgage company would look at the market rate for the rent when determining whether the loan amount would be covered by expected rent, and not accept some arbitrary dreamer rent achievable put forward by the loan applicant.

                    Loan applicant: "Oh we know the market rate for rent for this type of property in this area is only £500/month but we intend giving the house a fancy posh name so we can charge £700/month."

                    BTL mortgage provider: "Oh in that case no worries, your loan is approved."

                    Sound likely?

                    On the other hand some lenders want to see that the loan is covered by more than the rent for affordability during voids in the rent when the property is empty, so if you can show you can cover say 150% of likely rent through actual rent plus supplemental means (income or savings) then a higher LTV may be achievable without having to mess about with dodgy schemes to get an artificially high rent.
                    I think you may have misunderstood... Or I have misunderstood you.

                    They would look at the market rent by default but because we have a tenant in place, they will look at the rent we receive; they probably take the lower if the two if we're being technical?

                    I am not suggesting we try to get the rent on the tenancy agreement higher than market rate, but discussing reducing the discount. Right now we charge about 50% market rate, if it was even 75% market rate the yield calculations would allow a 60-75% LTV.

                    E.g market rate is £500, we increase rent from 250pcm to 375pcm to placate the lender.

                    Sorry if I'm not being clear?

                    Sent from my ONEPLUS A6003 using Tapatalk
                    Originally posted by MaryPoppins
                    I'd still not breastfeed a nazi
                    Originally posted by vetran
                    Urine is quite nourishing

                    Comment

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