Can I Rent My Property Without a Buy to Let Mortgage?
If you’re an ‘accidental landlord’ and don’t tell your mortgage company that you are renting your property, it’s important to know what the consequences could be.
Many investors choose the path of becoming a landlord, but for some people this has happened by accident through unavoidable circumstances. You may have moved in with a partner and chosen not to sacrifice your investment, or you may have been relocated through work or study and felt that it wasn’t a good time to sell.
Whatever the reason you’re now a landlord, does your mortgage lender know? If not, it could be that you’ve forgotten to your bank or building society that there has been a change in your circumstances or you may believe that it’s not necessary to tell them in the belief that they won’t find out. However, lenders have developed increasingly sophisticated methods of catching out accidental landlords. Something as simple as a tenant returning mail in your name that has been sent to the property from the lender could trigger an investigation and result in you getting caught. They also use complex data sifting methods much like those used by HMRC to catch tax avoiders. This reportedly involves scouring the internet for clues that the property may be let out although this has never been openly confirmed by lenders.
So what could happen if you neglect to tell your lender that your property is being rented out?
By neglecting to tell your lender that you are renting out a property and requesting ‘consent to let’ could result in a demand for the instant repayment of your whole mortgage, something which most homeowners would be unable to do.
According to the Council of Mortgage Lenders (now a part of UK Finance) letting a property without the consent of your lender could be considered a breach of the terms and conditions of the mortgage and could entitle the lender to seek immediate repayment of the entire loan. In addition, you could have a black mark on your credit report making it difficult to secure lending in the future.
The most likely scenario is that your lender will agree to change the terms, even though they can enforce a strong penalty. Changing the mortgage terms could mean that there is a limit on the number of years it can be rented out, and you may have to pay an administration or arrangement fee.
By declaring that your home is being rented out, you could find that there are no immediate cost increases as many lenders will grand approval for the remainder of your mortgage deal without putting up your rate. In addition, it could even be beneficial to remortgage onto a buy to let rate if you have had your mortgage for some time, as the rates may still be lower.
Buy to Let mortgages
Lenders tend to see a buy to let property as a riskier investment than a residential property.
The Bank of England has regulated the landlords’ mortgage market much more closely since the credit crunch and as a result in 2017 we saw the introduction of tighter affordability rules for landlords.
Rates on buy to let mortgages are generally higher, often by a percentage point, which makes the monthly repayments higher, eating into a landlord’s profit.
Lenders take into account the likelihood of the property becoming void for a period of time; this is where the property is empty because a suitable tenant can’t be found or a tenant has vacated the property, resulting in a loss of rental income which could threaten mortgage repayments being made.
Informing your lender that the purpose of the property has changed is essential so we advice getting independent financial advice.
Clyde Property is a leading independent, multiple award-winning estate agent with over 30 years’ experience in selling and letting property in Scotland. Just call your local Clyde Property branch today, for friendly, impartial advice on letting and renting property.