Mortgages with Tenants in Situ: A Guide to Buying a Property with Sitting Tenants

Getting a mortgage in Situ is not simple as it seems, and it is essential for anyone looking to purchase a property with tenants in situ to understand the implications of this.

When you buy a property with tenants in situ, you will typically need to apply for a Buy to Let (BTL) mortgage. This is because lenders view tenants as higher risk than owner-occupiers, and your lender may require additional proof that the tenant in question can pay their rent regularly and on time. It is important to note that some lenders may not lend against a property with tenants in situ, so it is essential to check the lender’s criteria before you apply.

When applying for a BTL mortgage, you will need to provide proof of your income, as well as the tenant’s rental agreement and references. You should also provide a credit checkA check of a borrower's credit history, which is used by mor... of the tenant as an added precaution.

It is also important to consider the implications of purchasing a rental property with tenants in situ. This means that you will need to carry out certain legal checks and obligations, such as ensuring that the tenancy agreement meets regulations set by government legislation and that all necessary documents have been signed by both parties. You may also need to inform your lender of any changes to the tenancy or property, as this could affect your mortgage eligibility.

Overall, it is important to be aware of all the implications of buying a property with tenants in situ before you proceed. It may take some extra paperwork and research, but it is worth it in the long run if you want to secure a successful BTL mortgage and protect your interests.

In this article on mortgages with tenants in situ, we will explore this topic in detail and discuss the steps you need to take in order to buy a property with tenants in situ.

We will also answer the frequently asked questions, such as:

What is ‘Tenants in Situ’?

Can I get a mortgage with tenants in situ?

What are some benefits of getting a mortgage with tenants in Situ?

What are some challenges of getting a mortgage with tenants in Situ?

How can having tenants in situ affect the mortgage process?

What are the key steps involved in buying a property with sitting tenants?

What is the concept of a buy-to-let mortgage, and how it works with tenants in situ?

Buy to Let Mortgage when Tenant in Situ

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What is ‘Tenants in Situ’?

A tenant in situ is a tenant who is already living in a property when it is sold. The term “in situ” means “in place” or “in the existing position.” In the UK, tenants in situ have a number of legal rights, which means that they cannot be evicted without a valid reason.

The term “tenants in situ” is thought to have originated in the 19th century, when it was used to describe tenants who were living in properties that were being sold by the Crown. The term was later adopted by the private sector, and it is now commonly used to describe tenants who are living in properties that are being sold by private landlords.

Other common names for ‘tenants in situ’

In addition to “tenants in situ,” there are a number of other common names for tenants who are living in a property when it is sold. These include:

• Existing tenants
• Occupying tenants
• Tenants with sitting tenants
• Tenants with goodwill

Can I get a mortgage with tenants in situ?

Yes, you can get a mortgage with tenants in situ. However, it may be more difficult and you may have to pay a higher interest rate. This is because lenders view properties with tenants in situ as being more risky than properties without tenants.

There are a number of factors that lenders will consider when assessing your application for a mortgage with tenants in situ. These include:

• The type of tenancy agreement
• The tenant’s financial situation
• The condition of the property
• The value of the property

If you are considering buying a property with tenants in situ, it is important to consult a mortgage broker who can help you to find a lender who is willing to lend to you.

What are some benefits of getting a mortgage with tenants in Situ?

One of the main benefits of getting a mortgage with tenants in situ is that you can start earning rental income from the property immediately. You won’t have to wait for new tenants to move in, and your rental income will be more reliable as the current tenant is likely to stay on. Additionally, you may be able to take advantage of the tenant’s existing tenancy agreement, which can save you time and money when it comes to finding a new tenant.

What are some challenges of getting a mortgage with tenants in Situ?

One of the main challenges of getting a mortgage with tenants in situ is that it is more difficult to obtain finance than buying an empty property. This is because lenders view this type of property as being riskier as you are not able to inspect the condition of the property or assess the tenant’s financial situation. Additionally, you may be unable to access certain mortgage products if you are buying with sitting tenants.

How can having tenants in situ affect the mortgage process?

Having tenants in situ can affect the mortgage process in a number of ways, including:

• Lenders may be more reluctant to lend: Some lenders may be more reluctant to lend on properties with tenants in situ, as they view them as being more risky. This is because the lender will not be able to rely on the rent from the tenant to repay the mortgage if the tenant stops paying rent or leaves the property.
• You may need to pay a higher interest rate: If you are able to get a mortgage with tenants in situ, you may need to pay a higher interest rate than you would if you were buying a property without tenants. This is because the lender will be taking on more risk by lending to you.
• The mortgage process may take longer: The mortgage process may take longer if you are buying a property with tenants in situ, as the lender will need to check the tenancy agreement and the tenant’s financial situation.

If you are considering buying a property with tenants in situ, it is important to speak to a mortgage broker who can help you to understand how having tenants in situ will affect the mortgage process.

What are the key steps involved in buying a property with sitting tenants?

Here are the key steps involved in buying a property with sitting tenants:

1. Do your research: Before you start looking at properties, it’s important to understand the tenant’s rights and the landlord’s obligations. You should also research the different types of tenancy agreements and the different ways to finance a buy-to-let property.
2. Find a property: Once you’ve done your research, you can start looking for properties with sitting tenants. You can search online or work with a property agent.
3. Instruct a solicitor: Once you’ve found a property that you’re interested in, you’ll need to instruct a solicitor to handle the legal side of the transaction. Your solicitor will check the tenancy agreement and the tenant’s financial situation. They will also help you to negotiate the purchase price and the terms of the mortgage.
4. Get a mortgage: You’ll need to get a mortgage in order to buy the property. Some lenders are reluctant to lend on properties with sitting tenants, so you may need to shop around to find a lender who is willing to lend to you.
5. Complete the purchase: Once you’ve found a lender and you’ve agreed on the terms of the mortgage, you can complete the purchase of the property. This involves signing the contract and exchanging contracts with the seller.
6. Move-in: Once the purchase is complete, you can move in to the property and start collecting rent from the tenant.

Here are some additional things to keep in mind when buying a property with sitting tenants:

• The tenant’s rights are protected by law, so you cannot evict them without a valid reason.
• You will need to provide the tenant with a copy of the tenancy agreement and any other relevant documentation.
• You will be responsible for maintaining the property and for paying the landlord’s insurance.
• You may need to pay a higher interest rate on your mortgage if you are buying a property with sitting tenants.

What is the concept of a buy-to-let mortgage, and how it works with tenants in situ?

A buy-to-let mortgage is a loan for purchasing or refinancing residential property which is intended to be let out to tenants rather than lived in by the borrower. Classed as a business transaction, rates and fees are typically higher than those you would find with a standard residential mortgage.

The concept of a buy-to-let mortgage with tenants in situ refers to a situation where a property is purchased with the intention of letting it out, and there are already tenants living in the property. This is a common scenario in the real estate investment market.

If a property you want to buy to let already has tenants in situ, at first sight, it might seem to answer several significant issues:

• you might have picked up a bargain property since those with sitting tenants are likely to have had thousands of pounds knocked off the asking price, according to an article in Property Investments UK on the 14^th of March 2020;

• you won’t need to spend any time advertising and selecting tenants because they are already in place;

• the property comes with sitting tenants, so you get to receive rent from day one;

• if you have bought the property with tenants in situ, the seller has probably also left it furnished, so that is one less problem you need to worry about; and

• there is unlikely to be any need for the urgent or immediate refurbishment of the property because the tenants in situ decided to stay put despite the change of ownership and landlords.

Here’s how it works:

1. Mortgage Approval: When applying for a buy-to-let mortgage, lenders will consider the potential rental income from the property as a primary factor in determining loan approval and the amount to lend. Having tenants in situ can be beneficial in this regard, as there’s already a proven income stream from the property.
2. Existing Tenancy Agreement: If you’re buying a property with tenants in situ, the existing tenancy agreement usually continues under the new landlord. This means you’ll start receiving rental income from the day of the property purchase.
3. Rental Income: The rental income can be used to cover the mortgage repayments, maintenance costs, and other expenses related to the property. Any surplus can be kept as profit.
4. Legal Obligations: As a landlord, you’ll have legal obligations to your tenants. You’ll need to ensure the property meets health and safety standards, and you’ll be responsible for repairs. You’ll also need to protect the tenant’s deposit in a government-approved scheme and provide them with the prescribed information about where their deposit is held within 30 days.
5. Tax Implications: Rental income is considered taxable income, so you’ll need to declare it on your Self Assessment tax return. However, you can deduct allowable expenses (like mortgage interest, maintenance costs, and letting agentA company that manages rental properties on behalf of landlo... fees) from your rental income.

Remember, it’s important to seek professional advice when considering a buy-to-let mortgage, as this is a significant financial commitment and there are risks involved.

What are the problems you face if you are interested in getting a BTL mortgage with sitting tenants?

The problem

The one problem you are likely to encounter, however, is some difficulty in securing a buy-to-let (BTL) mortgage with a sitting tenant in place. A BTL mortgage with a tenant in situ is not impossible to obtain. You may need to look harder than normal; the pool of willing lenders is likely to be smaller; and, those you do find may charge a higher rate of interest or reduce the loan-to-value (LTV) ratio offered. (A specialist mortgage broker will be able to help you find a suitable lender and deal).

Why are mortgage lenders wary of lending on buy-to-let property with tenants in situ – and what might you do to make the prospect of your borrowing more appealing?

Your problems are likely to start with the conveyance of the property itself.

Conveyancing

Co-op Legal Services recommends that you instruct conveyancers with the relevant commercial experience, who know that extra care and caution will be needed in addition to the usual searches that are made as a matter of course. Enquiries need to be made about the tenants themselves, for example.

The conveyancing process must involve scrutiny of all the details relating to the tenancy, including the tenancy agreement itself, when it was created, the current status of the tenants (and whether they have the Right to Rent), and whether any other aspects of legislation may affect the tenancy.

There is a long list of duties and responsibilities which you want to ensure were carried out by the previous landlord:

• when were the last gas safety and electrical safety inspections made and were the necessary certificates issued;

• does the property comply with national and local fire safety regulations;

• does the local authority require a licence to be issued to operate the premises as a let property? If so, what are the terms of that licence and has the previous landlord complied with them;

• if the let property is furnished do the items of furniture meet the current fire safety and fire resistance standards;

• ask to see the inventory that was carried out at the beginning of the tenancy – and if there was none, ask the outgoing landlord to prepare one;

• when is the rent due, how is it paid, and have the sitting tenants ever given any trouble or delayed paying the rent when it fell due?

Evicting the tenants

You might decide that the easiest way of getting around any problems arising from having tenants in situ is simply to evict them. Unfortunately, it is by no means as simple as that.

As insurers Direct Line point out, to evict any sitting tenants, you must first establish the type of tenancy they currently enjoy and then give them the appropriate notice to quit. The period of notice will be at least two months.

If the tenancy is still in its infancy and less than six months have passed since it commenced, you must wait until at least four months have passed before issuing any notice to quit.

If the previous landlord breached any of the important tenancy protection measures – such as keeping their deposit safe in a Tenancy Deposit Protection scheme or failing to give them a copy of the handbook How to Rent– your difficulties will be compounded, and you might not even be able to evict them at all.

Next Steps

If you are interested in getting a mortgage with sitting tenants, you should start by consulting a specialist mortgage broker who will be able to help you find a suitable lender and deal. You should also ensure that you are aware of all the legal obligations, such as making sure that the tenants have the right to rent (as per local authority standards) and that all safety measures, such as gas and fire safety regulations, are being met. If necessary, you may need to give two months’ notice to the tenants. Finally, if there is a tenancy deposit in place, you must ensure that it is either transferred to you or held in a Tenancy Deposit Protection scheme.