Many landlords are professional investors who rent out buy-to-let properties as a business. They research the legal, health and safety and other requirements this entails and manage their properties (or use a property management company) efficiently from the outset.
But some landlords fall into the buy-to-let business accidentally. They may choose to rent out their home temporarily while they are working overseas, because they are moving in with a new partner or when they experience other changes in circumstances. Because it was never their intention to rent out their property, they are often not aware of the legal requirements, particularly if they let their home privately, maybe to a friend, family member or work colleague, rather than using a professional lettings agent.
If you find yourself becoming an ‘accidental’ landlord, for whatever reason, there are several steps you should take to ensure your property meets required standards – this includes organising gas and electrical safety checks, ensuring furnishings meet Fire Safety standards and obtaining an Energy Performance Certificate.
But the very first thing you should do is obtain ‘consent to let’ from your mortgage provider. This is permission from your mortgage lender to rent out your property (which you previously occupied yourself) to paying tenants.
Somewhere in the small print most mortgage agreements will have a clause which states that you must obtain permission before renting out the property. This is usually quite simple to do by filling in the lender’s online application form but it is absolutely essential.
Rates for buy-to-let loans are usually higher (1% to 2% more) than for residential mortgages and often the lending criteria are stricter too. This is primarily because buy-to-let loans are seen as higher risk because of the possibility of void periods or non-payment by tenants which could cause financial problems for the landlord/lender. Because of the higher interest rates, accidental landlords can be tempted to not inform their lender of the fact that they wish to let their property. However, this is in breach of most lenders’ mortgage contracts and therefore mortgage fraud.
When you apply for ‘consent to let’, some lenders may let you stay on your current deal until it runs out but will impose a number of conditions so they can be sure your change in circumstances is genuine and not a way to obtain a lower interest rate than is offered on their usual buy-to-let deals. This might include specifying you live in the property yourself for a minimum of six months and supplying detailed information such as why you are now letting out the property, who the tenant will be and how much you expect to rent it for.
If you are using a professional letting agent to rent out your property, they may ask to see your ‘consent to let’ from your lender before taking on your property.
Failure to apply for ‘consent to let’ before renting out your home is a breach of the mortgage contract and is classed as mortgage fraud – deliberate non-disclosure could lead to a financial penalty or legal action.
If you don’t apply for ‘consent to let’, your lender could ask you to immediately repay your loan in full. You would have to declare this to other potential lenders who then might not be keen to lend you the money. Penalties for non-disclosure could include an additional 1% interest above the new consent-to-let interest rate, a fine and a demand for a back payment to cover interest lost due to the non-disclosure.
Another consequence of failing to inform your mortgage provider of your plan to let the property is that your buildings insurance may be invalidated. You will need a specialist landlord’s insurance policy.
So, however you find yourself becoming a landlord, it is essential to fully research your obligations. Your financial position is in jeopardy if you fail to do so.
If you are planning to let the property from the outset, you must make this clear to the lender when taking out the loan and you will then be offered a buy-to-let loan rather than a residential mortgage.
If you are thinking about renting out your home for the first time, contact our Property Management department and they can outline the steps you need to take to ensure you meet all your legal and financial obligations.
View all posts by Marc von Grundherr