Can I rent my house out on a normal mortgage? Renting out your property can be an excellent way to generate extra income. However, if you have a standard mortgage, there are several important considerations to keep in mind before you hand over the keys to tenants.
Understanding your mortgage restrictions and obligations as a landlord is crucial to avoid legal issues or financial repercussions. In this blog post, we’ll explore all the factors involved in renting out a property on a normal mortgage in the UK.
What is a Normal Mortgage?
A normal mortgage, or a residential mortgage, is a loan used to purchase a property. It is secured against the property and typically has a term of 25-30 years.
This type of mortgage allows homeowners to spread the cost of buying a house over an extended period and make monthly repayments.
However, it is essential to note that a normal mortgage is intended for owner-occupied properties, not rental ones.
Can I Rent My House Out on a Normal Mortgage?
You can rent your house on a normal mortgage, but only temporarily.
You must get permission from your mortgage lender before you start renting out your property, and in most cases, they will give you consent to let.
A consent-to-let agreement allows you to rent your house for a specified period without switching to a buy-to-let mortgage.
Consent To Let
Consent to let is a formal permission granted by your mortgage lender that allows you to rent out your property under the terms of your existing normal mortgage. It’s an alternative to switching to a buy-to-let mortgage specifically designed for rental properties.
This consent is particularly useful if you plan to rent your home for a short while, perhaps due to work relocation or an extended holiday.
To obtain consent to let, you should approach your mortgage lender with the request and provide a valid reason for wanting to rent out your property. The lender will then assess your situation, which may involve reviewing your financial standing and the terms of your mortgage.
If permission is granted, the lender may impose certain conditions. These can include an increased interest rate to reflect the higher perceived risk, a limit on how long you can rent the property, or even a one-time fee.
What Will My Lender Consider When It Comes to Consent to Let?
Here’s what most lenders will consider when deciding whether to give you consent to lease.
- Equity: Equity refers to the portion of your property you own outright. Most lenders require you to have a minimum equity of 25% before giving you consent.
- Credit score: Your credit score is an indicator of your financial health and shows how well you manage debts and repayments. A good credit score can increase your chances of getting consent-to-let.
- Rental income: Some lenders may consider the potential rental income from your property when assessing your application. This will require you to provide a tenancy agreement or proof of market rent for similar properties in the area.
- Affordability: Lenders will also assess whether you can afford to maintain both your current mortgage and any additional expenses associated with being a landlord, such as insurance and maintenance costs.
- Government Scheme: In some cases, lenders may also take into account any government schemes you are participating in, such as Help to Buy or Shared Ownership.
How Long Can I Rent Out My Property?
The duration of consent to let varies depending on the lender, but it typically ranges from six months to two years.
After this period, you must either switch to a buy-to-let mortgage or stop renting your property altogether.
If you wish to continue renting your house after the initial period, you must contact your lender and request an extension.
Some lenders may allow you to extend the consent-to-let period, while others may require you to switch to a buy-to-let mortgage.
What Happens If I Don’t Get Permission?
Renting out your property without getting permission from your mortgage lender is a breach of contract and can lead to serious consequences.
If caught, your lender may increase your interest rate or demand that you repay the entire mortgage immediately or even repossess your property.
In some cases, it could even result in legal action against you.
Therefore, it is crucial to communicate with your lender and obtain their consent before renting out your property.
Can I Switch to a Buy-to-Let Mortgage?
Switching to a buy-to-let mortgage is a viable option if you’re considering renting out your home for an extended period. Buy-to-let mortgages are specifically designed for properties that are to be rented out and differ from standard residential mortgages in several key ways.
They typically require a larger deposit, often at least 25% of the property’s value, and come with higher interest rates.
The application process for a buy-to-let mortgage will involve a credit check and an assessment of the potential rental income from the property, rather than solely your personal income.
Lenders will want to ensure that the rental income can cover the mortgage repayments by a certain percentage, commonly around 125-145%.
It’s important to note that changing over to a buy-to-let mortgage isn’t a decision to be taken lightly. There can be fees associated with switching, including exit fees for your current mortgage and arrangement fees for the new one.
Additionally, any rental income you earn will be subject to income tax, and there can be implications for capital gains tax when you sell the property.
Conclusion
In conclusion, while it is possible to rent out your house on a normal mortgage, it is crucial to obtain permission from your lender first.
Failure to do so can result in serious consequences and even lead to legal action being taken against you.
Remember, communication with your lender is key when renting out your property, and it is always better to be safe than sorry.