Can Landlords Live In Their Buy-To-Let Property?

Peoples circumstance change all the time, and for those who have invested in a buy to let rental property, they may find themselves in a situation whereby they are contemplating whether they should move into their rental property; either temporarily or for the foreseeable future. This chain of thought leads to a few questions including, are landlords allowed to live in a buy to let property?

As a landlord, you cannot live in a property that you have financed with a buy to let mortgage. In doing so, you would be in breach of your mortgage terms and conditions and you will be committing mortgage fraud. The mortgage lender would likely request immediate repayment of the loan amount.

The content of this article may seem extreme in places, but its is important that you understand how serious the consequences are if you accidentally, or deliberately, move into a property with a buy to let mortgage secured on it.

In the UK, the Financial Conduct Authority (FCA) oversees and regulates mortgage loan borrowers and what they can and cannot do with loans and property. In order to do this efficiently, the FCA categorises mortgages differently depending on the intended purpose for the property to be purchased.

This means that mortgage loan terms for an owners personal home with a residential mortgage, are different from those of rental properties with buy-to-let mortgages.

Landlord mortgage terms, as per FCA guidelines, dictate that the property must be used for letting to tenants ONLY. There are several reasons for this. The first is the fact that the Ministry of Housing, Communities and Local Government pre-classifies these properties as part of the “private rented sector”.

The second reason why but to let mortgages and residential mortgage terms are different is how the loan principles, and interest, are calculated. For a buy-to-let, lenders will most likely factor in the target rental income when determining the principal amount. This is somewhat different than the principle in an owner-occupied home mortgage loan, which is mainly based on the borrower’s personal income.

Interest also tends to be higher for buy-to-let mortgages than for owner occupancies. This is because most financial institutions perceive the former to carry a significantly higher risk than the latter.

Living in your own buy-to-let property would be a clear violation of the above guidelines. If caught, you could be compelled to pay back the entire loan in full in order to avoid having the property repossessed.

What If The Property Is Not Financed With A Buy To Let Mortgage?

Landlords can move into rental properties which they own outright and are not financed with a buy to let mortgage; otherwise known as unencumbered properties. Although they would be in breach of their tenancy agreement if the property is currently occupied by tenants.

Even moving into a spare bedroom for a short amount of time would be violating the tenants rights to quiet enjoyment of their home.

While breach of mortgage is a very serious (and potentially expensive) issue, it is only a threat to property owners who are yet to pay the loan off.

Once you have paid back the loan in full, the property is 100% yours, and you can do whatever you wish with it. Of course, you will still need to comply with landlord regulations if you intend to let the property to tenants.

What Happens If You Get Caught Living In A Buy To Let Property?

In addition to the mortgage lender requesting the loan be repaid in full immediately, if it is also proven that your living in a buy-to-let has interest gains for you over an owner-occupancy property of similar value, you may also be in breach of the Fraud Act 2006.

Depending on the extent of the misrepresentation, you could face up to 10 years imprisonment for fraud, according to the Act. However, for this particular infringement, you could reasonably expect a maximum prison sentence of 12 months. Still, not good!

The worst part about such a conviction, apart from losing all of your property and money, is that you will have a permanent criminal record and there would be little chance of the banks wanting to do business with you in the future.

National Hunter System

Before they convict you, they will need to catch you!

Enter the National Hunter System, the apex predator at pointing out freestyle form-fillers. Every form and information amendment you submit to one of the 90 partner financial institutions are cross-checked against pre-existing data to reveal shady dealings … like address changes.

The anti-fraud data sharing system is the brainchild of Dublin based Experian Decision Analytics. It has been running in a non-profit manner since 1993 by the six founding companies.

While National Hunter is tremendously efficient, it is not fully automated like a lot of credit scoring systems. What it does do though, is flag any oddities and forwards alerts to all relevant institutions for a final decision.

Your Details Could Be Entered Onto The Rogue Landlord Database

If you are caught living in your buy-to-let, there is a good chance that, on top of repaying the mortgage loan or having the property repossessed, you could get placed on the rogue landlord and property agents list. 

Introduced in 2018, this database is a tool that helps local authorities and lending institutions identify troublesome landlords who have been found guilty of a wide range of banned or illegal activities. So far, it’s been a steady start. However, with an ever-expanding list of infringements, the database is set to shape the private related sector in some way or another.

There are also discussions taking place for allowing tenants, or prospective tenants, to have access to this database.

As a landlord, you never want to wind up on this naughty list. Not only will your investment be affected by low or void rentals, but your name will be on a permanent government record, for everyone, including the banks and other lenders to see.

Can You Move Into Your Buy To Let Property With Consent?

Unlike seeking permission from your residential mortgage lender to let your home to tenants, it is not possible to gain consent to live in a property with which you have a buy to let mortgage product.

If you are caught living in a buy-to-let, and the lenders determine that your reasons for doing so were understandable, then you might be asked to change your mortgage agreement from a buy to let mortgage to a residential mortgage. But you also risk the lender requesting that the mortgage is to be repaid in full immediately.

Notifying your mortgage lender before moving in is the key – Pun intended!

Under FCA rules, owners can convert the standard buy-to-let mortgage to either a residential mortgage or a regulated buy-to-let. The former is the ideal pick if you plan on living in the property permanently. If your stay is temporary, then a regulated buy-to-let mortgage may be possible depending on the lenders criteria.

You can remortgage with your existing lender or seek a mortgage with a new lender. Of course, switching your mortgage product will likely incur fees. Apart from the legal costs, arrangement, and valuation fees, there is the potential for an early repayment charge on your current buy-to-let mortgage product to.

You might also be facing a hefty fine if you had already moved into the property without informing the lender. If you were still charging any existing tenants rent, this amount must be declared to the lender as well.

It is also worth pointing out that whether you apply for a residential mortgage, or a regulated buy-to-let mortgage, you will still be required to complete the application process.  This includes credit and affordability checks.

It Would Be Much Cheaper To Switch To A Residential Mortgage

As I mentioned above, a buy-to-let is often accompanied by a higher interest rate on the mortgage loan. Financial institutions, especially banks, regard rental properties to be a higher risk compared to owner occupied properties. This thinking is based on the belief that people are less likely to default on payments for homes in which they are actually living in.

Then there is the cost of getting caught. If you are deemed to be in breach of the buy-to-let mortgage, you will have to pay back the whole loan, plus interest. Nine times out ten, culprits cannot do so, of course, so properties are often repossessed and sold by the lender.

Mortgage Fraud Can Be A Gateway For More Fraud

Once you are living at an address you shouldn’t be living at, you will have to be extra careful about the kinds of forms you fill out.

To avoid getting caught by the Nation Hunter, for instance, you would have to ensure that all of your credit search data does not have so much as a trace of you living in your buy to let property.

Motor vehicle insurance would also be a massive challenge if you were living this way. You would constantly have to make up stories about where you house your vehicles, and you could then be in breach of your insurance policy.

Even updating the address on your driver’s licence could raise flags, meaning you’d have to lie some more. Not changing the address on your driver’s licence carries a heavy penalty in its own right, so you might want to think twice!

Permanent Loss Of Landlord Status

Quite a few of the above consequences will, in most cases, lead to you losing your status as a landlord … permanently!

If you are flagged as a “rogue landlord”, convicted of fraud, or picked out by the eagle-eyed National Hunter System, it may become extremely difficult for you to ever get approved for a mortgage loan again. Banks are skittish enough as it is when everything is above board, so you having previous run-ins with impropriety will be a major stumbling block for your future real estate endeavours.