Consent to Let: Can I Let My House Without Telling My Lender?
If you’ve purchased a property with a residential mortgage, you may be wondering if you can rent out the property to tenants without telling your lender. It’s important to be aware that when you take out a residential mortgage, you are entering into a legal contract with your lender.
The short answer to this question is no. Failure to inform your lender will infringe upon the legal conditions of the initial mortgage contract. However, that doesn’t mean it’s impossible to change your mortgage or get consent to let out the property.
Depending on the type of loan and other factors, some lenders may be willing to allow you to rent out the property, while others may not. It is important to discuss this with your lender prior to renting out the property so that you can determine if it is allowed and what additional requirements must be met in order for it to be allowed.
In this article, we take a look at the following:
- how you can let your property to tenants,
- how to get consent to let and
- some common pitfalls to avoid getting into hot water with your mortgage lender.
Can I Let My House Without Telling My Lender?
If you find yourself a landlord but have failed to tell your mortgage lender, it’s important to know the possible consequences. Generally speaking, if you don’t have written consent from your mortgage lender, you shouldn’t let out your home. Buy-to-let mortgages are priced higher than standard rate mortgages and come with different terms and conditions.
A buy-to-let mortgage application usually has more strenuous eligibility criteria. Buy-to-let borrowers are considered higher risk than residential borrowers (lenders perceive people to be more likely to default on payments for homes they are not actually living in), and lenders offer buy-to-let mortgages at a higher interest rate. If you’re looking to become a landlord, you should look into getting a buy-to-let mortgage instead of attempting to hide your rental activity from your lender.
Take a Look at Your Mortgage Agreement
The terms and conditions of your primary mortgage agreement will lay out the regulations around letting to another party. Although they may be tucked away in the small print somewhere.
When you signed your mortgage contract there is likely a clause that states if you want to rent out your home you must seek permission. If you violate the agreement, you will open yourself up to extra charges or raised rates, and may even be asked to pay off your entire mortgage immediately.
Not only could your lender discover that you are renting out your home, but they could also take steps to repossess the property. This means that if you have not taken the proper steps in advance and secured written consent from them, all of your investments and hard work could be for naught. In some cases, even if you do have written consent from the lender, they may still increase the interest rate on your loan or impose other conditions on the loan agreement.
Is it Illegal to Rent a House Without a Buy-to-Let Mortgage?
While technically not illegal, it can be classed as mortgage fraud and there are certainly consequences to letting out your property without express permission from the lender.
Violating your mortgage agreement can have a significant impact on your credit score, making it much harder to remortgage, meaning you may have to sell your home. Buy-to-let mortgages are specifically designed for landlords and you may have problems getting a mortgage further down the line too.
In addition to the financial consequences, it is important to remember that you may be responsible for any damages caused by tenants and there is no legal protection for you if they fail to pay the rent. You will also be liable for any taxes on rental income and may face a hefty fine if you fail to declare it. It is therefore best to ensure that you have the correct mortgage in place before renting out your property.
How Can I Let My Property Out to Tenants?
If you want to rent out your property to tenants, you’ll switch to a buy-to-let mortgage.
As mentioned, for homeowners with residential mortgages the terms and conditions of your agreement may not allow you to rent out your home. Instead, you should obtain something called consent to let. Only once you’ve obtained consent to let from your lender, you can start looking for tenants.
What is Consent to Let?
Consent to let is a formal agreement between you and the mortgage lender. It will allow you to rent out your property without breaking the terms of the mortgage. However, it’s important to remember that consent to let usually comes with certain rules you should be aware of.
Consent to let allows you to change the conditions of your residential mortgage agreement usually for a short period of time to let out all of your home or its rooms. While offered by many lenders, usually certain conditions need to be met and certain terms apply, which can include:
- You need to be up-to-date with your mortgage payments
- You need to show that you can rent your home with a legally accepted tenancy agreement
Consent to let is usually a short-term arrangement and is not a change to your residential mortgage. Instead, it’s viewed as a way to deal with a change in circumstance, such as moving abroad or caring for family members.
Obtaining a consent to let doesn’t necessarily mean you’ll lose the existing mortgage agreement or be out of pocket. In some cases, the lender may look favourably on the new occupants and grant the consent to let without additional interest rates being added.
In this respect, your choice of tenants is important to consider. If they’re low earners with a bad credit rating, a consent to let is harder to come by. You may even be penalised more as the primary mortgage owner. Before renting out your property, make sure to check that the potential tenants have the right to rent in the UK, as well as references and proof of income. You should also draw up a tenancy agreement that sets out the rights and obligations of both parties.
What You Need to Know About Consent to Let
If you want to rent out your property or some of its rooms on a long-term basis, you can use consent to let to cover the in-between period while you convert your mortgage to a buy-to-let mortgage. Most lenders will be happy to give you temporary permission to take on tenants while still under the terms of your normal mortgage.
You should note that getting consent to let isn’t free and typically involves:
- paying a higher interest rate,
- an administration fee,
- or both.
If you have a fixed-term mortgage deal, you may incur a steep early repayment charge for switching to a buy-to-let mortgage.
As such, it’s important to weigh up the cost of consent to let against the cost of an early repayment penalty before you decide which option is best for you.
It is also important to understand that your lender may require you to have a minimum rental income in order to grant you consent to let. This income must be a certain percentage higher than your mortgage payments. So make sure that you are confident in your ability to meet this requirement before applying for consent.
What are the Benefits of Consent to Let?
Getting consent to let protects you against committing mortgage fraud. Not to mention any consequences your lender may impart if you break the contract agreement.
Consent to let can be helpful to trial run letting out your home without fully committing to it. You may want to try renting out a room, or renting out your house if you are away for a short period. As consent to let is for a short-term period, you can change your mind if things don’t go as planned.
Getting consent to let is usually easy and straightforward to arrange, especially when compared to remortgaging right away
The process is usually much quicker and you can start renting out your home in a matter of days. It is also a great way to make some extra income if you are looking to supplement your salary.
You can also use consent to let when you are considering selling your home. You may decide that letting it out for a period of time will increase its value or help to attract the right kind of buyers.
Things to Consider When Letting out Your Property
If you’ve decided that you want to rent out your property and have applied for consent to let, you need to bear in mind the responsibilities that come with being a landlord. Some additional costs:
- include paying tax on rental income,
- fees for letting agents and
- repairs and renovations to ensure the property is up to standard and legal fees for tenant contracts.
You can find out more about the responsibilities of becoming a landlord in our buy-to-let guide.
What Happens at the End of the Consent to Let Period?
Your bank will usually issue an agreed period of time for you to lease your home. When this time period comes to an end, the stipulations in your residential mortgage agreement once again come into force. And you are again held to the previous terms.
This means that if you continue to lease out your property you would be committing mortgage fraud. If you have a good reason, often the mortgage lender will extend the consent to let period. Or they’ll help you switch to a buy-to-let mortgage.
If you do not have a good reason, then the lender may take legal action against you. It is important to stay in contact with your mortgage lender. And to discuss any changes in your circumstances that could affect your ability to keep up with repayments.
If you are unable to keep up with repayments, it is important to contact your lender as soon as possible. As they may be able to help you by providing alternative solutions. This can include extending the consent to let period or switching you over to a buy-to-let mortgage if appropriate. It is also important to remember that failure to abide by the terms of your agreement can result in further legal action being taken against you.
What are the Terms of a Consent to Let Agreement?
In terms of the main high street banks, consent to let details can usually be found on their website. Although some conditions may differ from lender to lender, a few recurring stipulations appear.
- The change in circumstance must be genuine. If the intention was to always let out the property in the first place, this will hinder your application. To get around this, lenders usually insist the property owner pay the mortgage for at least six months.
- Interest rates will typically rise by around 1% to 2%, plus an administration fee.
- An application form needs to be completed including detailed information about the reason for letting, expected tenants, earning potential, etc.
- A valuation of the property will usually be requested by the lender.
- The tenant’s details need to be provided, including proof of their income.
- The landlord must provide a detailed description of the property’s condition. As well as any maintenance or repair work that needs to be done.
What happens if I Don’t Get Consent to Let?
If you fail to get consent to let and sublet your property or some of its rooms to tenants, your lender could call in the entire mortgage. Meaning you’ll owe the full sum.
Being a landlord also comes with legal responsibilities such as landlord’s building insurance (read more on this topic, here). If something were to go wrong, whether water damage or fire damage, the insurer may refuse to pay out. Therefore you might have to pay for damages yourself.
As a landlord, it’s your responsibility to ensure that all relevant legal requirements are met. This includes obtaining consent from the lender in order for the tenancy agreement to be valid.
Can I Live in My Buy-to-Let Property?
If you’re financing a property with a buy-to-let mortgage, you may wonder if you can live in the property. Unfortunately doing so would be a breach of your mortgage terms! Also akin to renting a house that has a residential lease. Not to mention, you may have to immediately repay the entire loan amount to your lender.
If your rental property isn’t financed by a buy-to-let mortgage, you are allowed to move into such properties. As long as this doesn’t breach any tenant agreements. With a residential mortgage, it’s possible to request that you rent out your home to tenants. Although it’s not possible to gain permission to live in a property for which you have a buy-to-let mortgage.
If you are caught living in a buy-to-let property and can provide an understandable reason for doing so, a lender may simply ask you to change your mortgage from a buy-to-let mortgage to a residential mortgage. But there’s still the risk they will request the mortgage be paid in full immediately.
Can I Rent my Buy-to-Let Property Out to Family?
The ability to let out your property to your family depends on your mortgage lender. As well as on the terms of your mortgage. Sometimes you will need to apply for a special family buy-to-let mortgage. You should charge your tenants fair rent based on similar properties – even if they are family members.
If you’re looking to change your property from residential use into a buy-to-let, it’s important to get permission from your mortgage provider and ensure you have a consent to let agreement. Failing to get consent to let can have negative consequences. So it’s important that you understand and adhere to the terms in any mortgage agreement you have. For more information on consent to let, or to see if your home is eligible to become a rental property, get in touch with our team today.