Renting out your property often requires a buy-to-let mortgage, especially if your existing mortgage terms prohibit renting without consent. Not obtaining consent to let can be considered mortgage fraud, even during a switch to a buy-to-let mortgage. Remortgaging may not be necessary for short-term rentals, but it’s crucial to adhere to lender rules.
The trend of accidental landlords is growing, driven by sellers waiting for a better market or homeowners temporarily relocating. Homeowners upsizing or moving in with a partner also frequently choose to retain their original flat or house and try their hand at being a landlord. However, those choosing to rent out their home for the first time risk the wrath of their mortgage lender if they neglect important housekeeping.
Residential mortgage offers include a clause stating that the property cannot be let out without the lender’s explicit permission – failing to inform the bank before letting a property would breach the terms and conditions of the loan. New landlords must navigate these rules to avoid repercussions from mortgage lenders.
Is It Illegal To Rent Without Buy-To-Let?
Yes, you can rent out a property without a buy-to-let mortgage if you own it outright. However, having a residential mortgage on the property prohibits renting it out. Additionally, it’s not permissible to purchase a rental property with a residential mortgage.
Renting out your property without a buy-to-let mortgage is a breach of your residential mortgage terms, constituting mortgage fraud. The repercussions can be severe, including immediate repayment demands or property repossession by your lender, who can uncover the violation through past ads or the electoral register.
Instead of opting for a buy-to-let mortgage, an alternative is to apply for consent to let. This provides permission to house tenants under your existing residential mortgage, ensuring compliance with regulations and avoiding the legal and financial consequences of unauthorized renting.
What is consent to let?
A consent to let agreement, also known as a ‘lease permission period,’ provides a short-term adjustment to your residential mortgage conditions, allowing you to rent out part or all of your home. To qualify, you must stay current on your regular mortgage payments and present a legally acceptable tenancy agreement, like an assured shorthold tenancy.
It’s important to note that consent to let is a temporary solution and doesn’t represent a permanent change to your residential mortgage. Lenders typically view it as a way to accommodate significant life changes that may necessitate moving out for a brief period, such as work commitments, travel, or family responsibilities.
If your goal is long-term renting, you can utilize consent to let while working on converting your residential mortgage to a buy-to-let arrangement. However, it’s essential not to delay the process and initiate the transition promptly.
When should I seek consent to let?
There are various scenarios where obtaining consent to let can be beneficial, and your lender should be willing to assist you in appropriate circumstances. These include:
- Relocating for work and wanting to take on a tenant to offset the costs of renting a new property.
- Moving in with a partner and considering letting out your current property while awaiting its sale.
- Needing to live with a friend or family member for caregiving purposes.
- Being a member of the armed forces and receiving redeployment to a different area.
If you plan to rent out your home without residing there yourself in the foreseeable future, it’s crucial to initiate the switch to a buy-to-let mortgage. However, if you wish to commence letting the property before the new mortgage takes effect, obtaining consent to let is necessary.
What are the costs of letting out my property?
Renting out your property involves navigating legal requirements and incurring additional costs. One crucial aspect is obtaining consent to let, which, however, comes with its own financial implications. Lenders may charge an extra percentage on top of your existing mortgage rate or impose a one-off fee for granting this permission.
Moreover, the financial commitment extends to various areas:
- Insurance: Ensuring your property has comprehensive coverage becomes a necessity when entering the rental market. This safeguards against potential damages or unforeseen events, providing financial security.
- Tax on Income from Rent: Renting out your property introduces tax obligations related to the income generated. Understanding and fulfilling these tax responsibilities is paramount to avoid legal complications.
- Letting Agent Fees: If you opt for the services of a letting agent to manage the rental process, be prepared for associated fees. These charges cover tasks such as property marketing, tenant screening, and lease management.
- Repairs and/or Renovations: Maintaining the property to meet rental standards is an ongoing commitment. This includes addressing repairs promptly and considering renovations to enhance the property’s appeal and value.
- Legal Fees: Engaging in the rental market involves legal considerations, from drafting tenancy contracts to resolving potential disputes. Legal fees may arise during these processes, emphasizing the importance of sound legal guidance.
Navigating these aspects ensures not only legal compliance but also financial preparedness for the intricacies of renting out your property. Understanding the landscape and planning for associated costs contribute to a smoother and more successful rental experience.
Consent To Let Restrictions and Criteria
Additional costs aren’t the sole considerations dissuading investors from opting for consent to let over buy-to-let mortgage rates. Lenders often impose various restrictions, including:
- Time with Lender: Some lenders may require you to have maintained your current mortgage deal for a specific duration, such as 12 months.
- Validity Period: Consent to let may come with a time limit, typically reviewed after a set period, like 12 months.
- Equity Requirement: Lenders might stipulate a minimum level of equity in your home, for instance, 25%.
- Rental Income Coverage: Ensuring that the rental income comfortably covers the mortgage is a common requirement, often set at 125% on an interest-only basis.
- Income Threshold: Some lenders may establish a minimum income threshold as a prerequisite for granting consent to let.
- Help to Buy and Shared Ownership: Mortgages under Help to Buy or shared ownership often include clauses prohibiting property letting, considering it as subletting. To pursue consent to let with such mortgages, a conversion to a standard mortgage may be necessary, involving the repayment of any shared equity or government loan.
Understanding these restrictions and requirements is crucial for investors considering consent to let. Ensuring compliance with the terms is essential when exploring this option.
Advantages of Consent To Let
- Quick House Movement: Consent to let facilitates a swift transition when you need to relocate, offering flexibility and efficiency in your housing arrangements.
- Cost Efficiency: By avoiding simultaneous mortgage and rent payments, you can manage your finances more effectively during the transition period, reducing the burden of double financial commitments.
- Financial Coverage: The approval process for consent to let involves demonstrating that the rental income will cover your mortgage costs. This financial coverage provides reassurance during the application process.
- Introductory Buy-to-Let Experience: Consent to let serves as a practical and straightforward way to dip your toe into the world of buy-to-let investments. It allows you to gauge whether being a landlord aligns with your long-term goals without committing fully.
Disadvantages of Consent To Let
- Tenant Challenges: If you encounter difficulties finding tenants for your property, you may find yourself in a stressful situation, having to meet both the mortgage payments on your current property and the rent or mortgage on your new residence.
- Financial Implications: Consent to let may come with additional costs, such as mortgage fees and potentially higher interest rates. It’s essential to weigh these financial implications before opting for this arrangement.
- Additional Landlord Costs: Engaging a letting agent, ensuring property compliance, and meeting other landlord obligations add to the overall cost. These responsibilities can involve additional expenses and efforts to manage the property effectively.
- Repairs and Maintenance: As a landlord, you’ll be responsible for arranging and covering the costs of repairs and maintenance during the tenancy. This adds another layer of commitment and financial responsibility to consider.
Can I rent out my property to my family?
Many buy-to-let mortgages impose restrictions on renting to immediate family, like adult children. While consent to let terms may not explicitly prohibit this, lenders may still have reservations. Meeting standard consent to let conditions, such as a legal tenancy agreement and market-rate rent, remains essential.
However, seeking consent to let while hoping to charge a lower rent to a family member might pose challenges. In such cases, obtaining consent could be difficult, but exploring family buy-to-let mortgages could be an alternative. Although rare, these mortgages typically require rental income to cover just 100% of the mortgage cost, without additional charges.