If you're an owner occupier but you decide to live elsewhere for a short while, most people would assume it's OK to rent out your home.
However, on a residential mortgage you need what's called "consent to let" from your mortgage lender — and they're making it more difficult to let out your existing property in this way.
Lenders are beginning to charge higher fees, make you jump through hoops, or refuse to consent at all. Contrast this situation with the buy-to-let boom years when, in lenders' eyes, there was nothing wrong with short term letting as long as the mortgage repayments were kept up.
Previously, you might have faced a £100 admin fee at most. Now, your lender might require you to:
• attend interviews
• pay a higher interest rate or fee
• move to a buy-to-let mortgage deal
Buy-to-let mortgages typically have higher interest rates and stricter qualifying criteria than residential mortgages, meaning #3 there is as much an obstruction as #1 or #2.
Here are some specific mortgage lender illustrations:
• Intelligent Finance charges mortgage borrowers a lease fee of 0.5 per cent of the outstanding mortgage every six months — a significant extra cost for borrowers (on a £100,000 mortgage that's nearly an extra £1,000 a year).
• Yorkshire Building Society asks a £100 administration fee and puts up your mortgage interest by 1% if your loan-to-value is over 75 per cent
• Northern Rock avoids giving consent at all if your loan-to-value is above 70 per cent.
• Abbey interviews borrowers before giving consent and is likely to request borrowers to move onto a buy-to-let deal
• Halifax also demands an interview; borrowers must move on to a specific consent-to-let rate, priced similarly to a buy-to-let deal
However, some lenders are not so draconian:
• Nationwide has been known to agree three-year letting periods at no extra cost
• HSBC lets you rent out your property for 12 months without any extra charges
• Northern Rock charges £250 to allow you to let your property over 12 months
Warning if you're thinking of letting on the quiet
If all these restrictions tempt you not to tell your lender about letting out your property, be prepared for a penalty: on a residential mortgage you'll be in breach of your mortgage conditions, which affects your tenant as well as yourselves. Jump through hoops for a fair deal you might, but it's better than having your mortgage cancelled.
The other party to inform when letting out your property is your home insurer: without notice, they could invalidate your policy in the event of a claim. A tenant might not take the good care you do, so being uninsured is not something we'd want to face!
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