Updated 03 September 2020
If you want to let out a property to tenants, you usually need a special buy-to-let mortgage. If you are a homeowner, the terms of your mortgage may not allow you to rent out your home unless you obtain something called consent to let. Letting out a room without the permission of your lender is classed as mortgage fraud, even if you are in the process of switching to a buy to let mortgage.
However, you don’t necessarily need to remortgage if you want to let out your home – particularly if this is only for a short period of time. Here you can find out more about consent to let and when you might need to switch to a buy-to-let mortgage.
There are a lot of reasons you may want to rent out your house, or let just one or two rooms in your home. You may be in the process of switching to a buy to let mortgage, or helping a friend out for a few months. Alternatively, you might be working abroad for a few months, and want to let out your home temporarily in the meantime.
However temporary or minor the letting arrangement may be, you will still need the consent of your lender if you want to avoid breaking the law.
Remember, if you don’t have your lender’s written consent to let, you can’t let out your home without a buy-to-let mortgage. Most residential mortgages include a clause about this in the agreement. If you violate that agreement, you will open yourself up to extra charges or raised rates, and may even be asked to pay of your entire mortgage immediately. And since it will now be much harder to remortgage (because you’ve blighted your credit record by violating your mortgage agreement), you may have to sell your home. In short, don’t!
The good news is that it’s fairly easy to get consent to let to cover you for a short time, such as during the changeover period to a buy to let mortgage or move to a new house. Most lenders will be happy to give you temporary permission to take on tenants while still under the terms of your normal mortgage.
A consent to let agreement (also known as a ‘lease permission period’) allows you to alter the conditions of your residential mortgage agreement for a short period of time and rent out some or all your home. Many lenders offer this, but there are usually a few conditions to be met. Firstly, you need to be fully up to date with your normal mortgage payments. Secondly, you need to show that you plan to rent out your home using a legally acceptable tenancy agreement, such as an assured shorthold tenancy.
It’s important to remember that consent to let is a short-term arrangement. It does not grant you lease permission over the long term, and is not a permanent change to your residential mortgage. Instead, most lenders see it as a way of helping you deal with big changes that might mean you have to move out for a few months (e.g. work, travel, caring for family members, preparing to move abroad and so on). If your aim is long-term renting, you can use your consent to let while converting your residential mortgage to a buy-to-let – but don’t delay in getting this process started.
There are many reasons why you might want consent to let, and your lender should be happy to help you benefit from renting in the right circumstances. For example:
If you want to rent out your home and have no plans to live there yourself for the foreseeable future, you need to get started on switching to a buy to let mortgage. But if you want to start letting the property before the new mortgage takes effect, you’ll need consent to let.
Letting your property isn’t straightforward. There are legal hoops to jump through and some additional costs. Firstly, consent to let is not free. Lenders will either charge you an extra percentage on top of your current mortgage rate, or a one-off fee.
Some of the additional costs of letting your property include:
Consent to let obviously guards you against committing mortgage fraud. But as a bridging mechanism while you change your mortgage, it has important benefits:
Buy to let mortgages tend to have higher rates than your average residential mortgage, so gaining a short-term consent to let may work out as a better value way to rent out your property. There are, however, some things to bear in mind:
Stamp duty on buy-to-let properties changed in April 2016 as part of the government’s attempt to slow the rise of house prices and make the market more favourable to first time buyers.
The key thing to remember is that the extra tax is not merely on buy-to-let properties, but on second properties (i.e. all properties bought in addition to your main residence). Therefore, if you are letting out your home and not buying another (e.g. if you are going travelling) then the additional stamp duty will not apply, since it’s still your only property.
If, on the other hand, you let out your home while buying a new one (‘let to buy’), then the new property will count as a ‘second home’, so you will need to pay the additional rate of stamp duty on that purchase.
When your agreed lease permission period ends, your residential mortgage reverts to the same agreement and stipulations you had before. This means you would be committing mortgage fraud if you continue to let your property.
You have two options at this point if you want to continue renting out your property. You can either apply for an extension of your consent to let period, or switch to a buy to let mortgage. A mortgage broker may be able to advise you on which option suits you best.
There are sometimes special conditions available if you wish to let out a property to family members, e.g. to adult children. Whether or not you can rent out your property to family members depends on your lender – you may need to apply for a specialist family buy-to-let mortgage. It is also important to charge your tenants a fair rent based on similar properties in your local area, as per FCA regulations.
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