Is It Illegal To Let A Property Without A Buy To Let Mortgage?

Front Door with Key

There are times when peoples circumstances change and they may consider letting their home instead of selling it.  It’s more common than you might think, and I know this because I have been in this situation myself.

Is it illegal to let a property without a buy-to-let mortgage? No.  However, if your home is mortgaged you will need consent from your lender to do so.  Additionally, if you have already cleared your mortgage in full, or if you purchased the property with cash, then you will not need a buy-to-let mortgage product to let your property to tenants.

I think it’s fair to assume that most people will purchase their home with a mortgage, so if their circumstances change and they need to move out, but they don’t want to sell or leave the property standing empty, it’s very important that they obtain consent from their lender before doing anything else.

There are several reasons why people may NOT want to sell their home.

A Change or Move With Work

This is probably the most common reason which is exactly what happened to me.  I knew I would be returning to my home town in the future, so I didn’t particularly want to sell and I didn’t want the property being left empty either.  An uninhabited house poses security and damage risks with frozen pipes or leaks that can cause serious issues if left undetected over a long period of time.

Market Conditions Are Not Right

The property market is something that is out of our control and there will be peeks and troughs all the time.  So there is a chance that the market conditions are not going to be right for you to sell and that you would prefer to wait for a few years.  Especially if the country is in, or heading towards, a recession.

You Need To Move Quickly

A golden work opportunity has landed on your lap and you need to grasp it with both hands and move immediately.  Or perhaps you have decided to treat yourself to a world cruise and you will be away for 12 months or more.  Whatever the reason, it is quite common that people need to move quickly and the thought of having to sell their home is overwhelming or off putting to the new adventures that await.

Cost Of Selling A Home

Selling a home can be very costly when you add the estate agent fees, conveyancing and legal fees.

Moving In With A Partner

You may want to take the next step in your relationship and move in with your partner.  At the same time, you may not want to give up your current home in case things don’t work out (cough), or more likely, you see this as a great opportunity for not having to sell and fulfilling your desire to be a small business owner and a property investor.

Obtaining Consent From Your Mortgage Lender

This can simply be done by telephoning your lender and asking for permission to let your property with your current mortgage product.  Lenders can be flexible as they are fully aware that peoples circumstances change, and depending on your reasons and situation, they may prefer to keep you as a customer rather than to let you go.

They may require proof of your new employment opportunities or extended holiday plans and other basic identification checks, and there may also be an administration charge or an arrangement fee. But it will not take long to gain consent if the lender is happy to do so.

Consequences Of Not Gaining Consent From Your Mortgage Lender

If you decide to let your property without informing your lender, they will be within their rights to demand payment of the outstanding mortgage balance in FULL immediately!  Having a tenant in your property without the lenders consent, will be a breach of the mortgage terms and conditions.

Additionally, this could have a negative impact on your credit report which would make it very difficult for you to obtain further lending in the future.

What To Do If Consent Is Not Granted

Consent will be granted based on a number of factors, and if the lender cannot grant permission based on your current mortgage product, don’t panic.  Firstly, I would expect that they would offer you one of their own buy-to-let mortgage products.

Interest rates will typically be a percentage or two higher than a residential mortgage and this is because lenders assess a buy-to-let mortgage as a greater risk with it being rented out as opposed to being owner occupied. But the income that you will receive in rent, will cover your new mortgage payments and other expenses.

Secondly, whether your current lender offers to switch you to a buy-to-let mortgage or not, it would be worth taking the time to contact a reputable mortgage broker to obtain quotes from other lenders which maybe more competitive.

Lenders conduct ‘stress tests’ to help protect themselves, ensuring as best as they can that the rental income will more than cover the mortgage payments and other expenses you will encounter as a landlord.  I have written an article about calculating the numbers for a rental property to give you an idea of the things you need to take into consideration.

In short, if your current lender doesn’t give consent or permission, you still have the option to obtain a buy-to-let mortgage with another lender and you would simply use your new buy-to-let mortgage to pay back your old residential mortgage.

Renting Out Your Home

Welcome to the world of being a property investor and landlord!  You have become an investor because you now have an asset which will be producing an income for you every month. Many people view their own homes as an investment.  But this isn’t strictly true in investment terms, as your home costs you money to live there and doesn’t produce an income for you.

You will be a landlord as you are responsible to your tenants.  You can go it alone, but for first time landlords I would always recommend using a letting agent, as they will assist you with the administration and will ensure that you meet all the regulatory requirements.

I am so passionate about property investing that I would always recommend that people consider letting their property to tenants as opposed to selling.  Aside from the selling fees, we then have the purchase fees of the new property when we move home, so lots of money can be saved when you are in a position where you don’t need to sell. If it doesn’t work out, then fine.  But at least they would have considered all their options.

By keeping your old home as an investment, you will save a lot of money on your moving fees.  Although this will only work if you have enough savings for a deposit for your new home, or, if you have lived in your current home for a number of years and you have enough equity which you can withdraw to use as a deposit for your new home.

The use of home equity can be very valuable and it’s a technique that a lot of people are not aware of.  I often receive comments on my YouTube video from people who have wanted to get started with property investing, and have struggled to save for a deposit for their first investment, to then discover that they have equity in their own home which helps them to get started with the purchase of their first buy-to-let property.

Can I Have A Buy To Let Mortgage And Live In The Property?

If you return to your previous home which you recently had to switch to a buy-to-let mortgage, you will again need to inform your lender.  The mortgage regulations work both ways and you will breach your mortgage terms and conditions if you decide to move back in without informing them.

It will also be in your best interest to switch back to a residential mortgage as the cost will likely be cheaper.

Andy Walker

Andy Walker is a property investor and landlord with over 20 years of experience, providing free education to help others start or improve their Buy-To-Let business.

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