So, you have been living in your home for a few years but your circumstances have now changed. Perhaps you have a job move out of the area, you’re moving in with a new partner or you are going travelling/moving abroad for a couple of years. You decide you don’t want to sell your property and so it makes sense to rent the property out while you are not living in it.
If you need to move out of your property, one of the first questions you will ask yourself is ‘will my lender let me rent out my property?’
Common residential mortgage terms forbid homeowners from letting out their property without prior written permission. However, some banks and building societies may give you consent to let your property on a short-term basis.
Letting out your home
In this guide, we will look at what actions you need to take if you are considering letting your property and a few possible options open to you that you may not be aware of.
Look at your mortgage offer
When you took out your mortgage you would have received a mortgage offer from your bank or building society. In the mortgage offer, the terms are laid out regarding the lender’s rules and requirements for letting out the property, including whether they will allow this.
Call your lender
If you are unable to find your mortgage offer, you could call your lender and ask them what you would need to do if you wanted to let out your property. Be careful at this stage as it might make your lender nervous if they feel it is your intention to do this. If the terms in your mortgage offer do not allow you to rent out your property and you chose to do so anyway, you would technically be breaking the terms of the mortgage. Your lender could view this as fraud and insist that you repay your mortgage immediately.
Consent to let
Some banks and building societies will give you permission to let your property and will let you keep your mortgage on the same terms and issue a consent to let. This is your best option if it is open to you, as it will have less paperwork and costs involved.
Some lenders will give you consent to let the property but at a higher interest rate. It is worth considering this option depending on how much the increase in interest rate is and how much extra per month this will cost you.
A consent to let will be reviewed by your lender every year. It is seldom a long-term answer if you intend to let the property for several years however they can be very useful to either get to the end of an early redemption period or if you are only wanting to let the property for a short term.
Speak to a mortgage advisor
Getting advice from a mortgage advisor could save you a lot of trouble and money. Not only will a mortgage adviser be able to understand your original mortgage offer and let you know what your lender’s rules are if you cannot find your mortgage offer they will have an understanding of the different banks and building society’s policy on letting a property while on a residential mortgage and will advise you on this.
How much will a mortgage advisor cost me?
Not all mortgage advisors charge a fee. Google NO FEE mortgage adviser and you will get a list of mortgage advisers that do not charge a fee. Take some time to look at the different mortgage advisers’ websites and Facebook pages. Look at their Facebook and Google reviews. Make sure they have lots of very happy customers.
So my lender says I can’t let my property. Now, what do I do?
The good news is you may well have another option open to you, especially if you are thinking of letting your property for several years or more. There is a mortgage that is just for this scenario. The mortgage is called a buy-to-let mortgage, which we will look at next in more detail.
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage used solely with the intention of letting your property. A buy-to-let mortgage is based on the rent you will expect to receive once you let the property. This is great if you will be having a change in your employment status as the lenders will use the expected rental when working out the affordability of the mortgage. It’s worth noting that you will need to have a minimum of 25% equity in the property. For example, if your house is worth £200,000 you would only be able to obtain a maximum mortgage of £150,000
What is a let-to-buy mortgage?
A let-to-buy mortgage is very similar to a buy-to-let mortgage. However, there is a difference! Say you have a property that you have been living in. You are now wanting to buy a new residential property and would like to keep your existing property with a view to letting it out. This is technically a let-to-buy. Don’t worry about this as it works in the same way as a buy-to-let mortgage and is only really different in name.
How do I find a buy-to-let mortgage?
We would suggest you get advice from a whole-of-market mortgage advisor. A whole-of-market mortgage advisor will be very experienced in buy-to-let mortgages and will compare the whole market to find you the best mortgage interest rates and deals.
How much will it cost me to remortgage to a buy-to-let mortgage?
There are likely to be costs involved when remortgaging to a buy-to-let mortgage. These will include –
- Valuation Survey
- Arrangement fees
- Legal Costs
Although these costs will quite often apply, there are many lenders that offer these at no cost to you as an incentive to gain you as a new customer. When you instruct a mortgage adviser they will not only find you the best interest rates, but they can also search for any mortgage lenders that are offering the above services at no cost to you.
Will my existing lender charge me to leave them?
When you took out the mortgage it was most likely a fixed-rate or tracker-rate mortgage. The fixed or tracker rate would have been for a certain term, most commonly for 2 or 5 years. Most mortgage lenders will charge you an early redemption charge for leaving them during the agreed fixed or tracker rate. Have a look at the mortgage offer and it will specify not only the amount charged for redeeming your mortgage early but also the end date of this charge. It is very important that you get accurate information on this and if you are unsure, get a mortgage advisor to help you as quite often the charge can be 3% of your loan. On a loan of £150,000, this can amount to a £4,500 charge!
Preparing to become a landlord
So, you have decided that it makes sense to let your property. You will now become a landlord! Being a landlord has a lot of responsibilities for example fire regulations such as ensuring there are enough smoke alarms and carbon monoxide detectors. Also, the property will need a gas safety certificate which can be obtained from a gas safe engineer.
The legislation that covers letting your home has increased significantly over the last few years. We would advise you consider getting a local letting agent or estate agent to let your property. Although this will cost you usually about 10% of the rent, it will take away a lot of the worry and save you time. More importantly, it will ensure that the let is handled in a professional manner. It is also worth noting that a letting agent should be able to get you a higher monthly rent. They will also have the processes and market knowledge in place to review this each year, so your property is always let and at the best rent possible. Rent can only be raised by a maximum of 4% each year and therefore it is important that this is reviewed every year as you will not be able to play catch up if you go several years without increasing the rent.
Summary
So like all things new it probably seems a little overwhelming! YesCanDo may be able to help you. We are a family-run independent mortgage adviser based in Hampshire that offers free mortgage advice to the whole of the UK. We have been established for over 30 years and have a team of mortgage advisors that are at hand to advise and assist you with making the decision on whether letting your home is right for you. Give us a call or WhatsApp us for a chat about a mortgage?
Do you have to use the estate agent’s mortgage adviser?
Your estate agent or letting agent may tell you that it’s either compulsory or that you are more likely to rent out your let quicker if you use their in-house mortgage adviser. In both cases, you definitely do not have to. It is actually illegal for an estate agent or letting agent to force you to use their own mortgage adviser. Read more on “Do you have to use the estate agent’s mortgage adviser?“
