Is renting a house without a buy-to-let mortgage illegal?
Houses are one of the most expensive purchases in most people’s lives. If you’re like most homebuyers, you need to take out mortgages to make your dream of homeownership a reality, mainly because it’s nearly impossible to buy a home with your savings in today’s market.
If you are not a landlord, you probably took out a residential mortgage when you purchased the property. But life doesn’t always go according to the plans we make. That’s why we often face cases when a homeowner wishes to rent out the home they purchased using a residential or a regular mortgage.
In such circumstances, a thousand questions pop into the homeowner’s mind. One of those questions is, “Is it illegal to rent a house without a buy-to-let mortgage in the UK?” This article aims to answer this question and all associated questions. But first, let’s discuss why people want to rent the house they bought with a residential mortgage.
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The following topics are covered below:
Why do people rent out their houses bought with a residential mortgage?
There are many reasons why someone may want to rent out their normal property, such as residential property. A common reason might be having an extra income source on the side if some rooms in your house are not being used.
Another reason may be that they are away for some time for work purposes and do not want to leave the property empty or sell it, so they decide to rent it out for that time.
A third reason could be that the property market is not at the right stage for them, so they decide to hold onto the property. This also has the problem of having an empty property, so they seek to rent it out.
Selling homes are not always profitable, so some people rent out their homes in adverse market conditions. And sell them in the future when the conditions are better.
Moving out with a partner or other family members is another reason for renting a house bought with a residential mortgage. That means they have an empty property that you also do want to sell, so you may decide to now rent it out.
These are some possible reasons behind someone may want to rent out their current property. In some cases, they want to rent out houses for a short period, and in some cases, they want to rent properties for the long term.
But whatever the reason is, all homeowners want to know if it’s illegal to rent out homes bought with normal mortgages.
Is it illegal to rent a house without a buy-to-let mortgage?
It is not illegal to rent out a property without a buy-to-let. However, there are some conditions before you can move forward. If you are the homeowner, you will need to obtain something called consent to let rent the property out. It would be best to inform your lender before making any of these decisions, or you could face the consequences. Letting out rooms without your lender’s consent is known as mortgage fraud, even if you are in the process of switching to a buy-to-let mortgage.
What if you are caught renting on a residential mortgage?
Going against the law is never a wise thing to do, and it can cause serious consequences. If you are caught renting your home bought on a residential mortgage without the consent of the lender, then you could face hefty fines and even imprisonment in some cases. This is because most mortgage agreements don’t allow renting out residential properties, and any breach of these rules can cause severe consequences for you. It is recommended you speak to specialist advisors before making such decisions.
If you breach any rules of your mortgage, you could also be in breach of the Fraud Act 2006. This could mean that you face up to 10 years imprisonment for fraud. However, the worst part is that you will have a criminal record, and banks and lenders will not want to do business with you again. Getting a mortgage would be nearly enough impossible.
If you are caught renting out your residential property or any property which is not a buy-to-let, not just will you face fines and could face higher rates, but it can also mean that the lender will ask for your whole loan amount to be paid immediately and in most cases, this means that you must sell your property.
If you are caught doing mortgage fraud, you have lost the trust of the banks and lenders, meaning it would be extremely difficult to ever be accepted for a mortgage loan again.
The right way to Renting Out Homes Bought on a Normal Mortgage
There are two ways of renting out a house bought on a residential mortgage. One is by acquiring consent to let, and another one is by changing residential mortgage to buy to let mortgage. We will describe both here:
Get consent to Let from your lender
Consent to let is most applicable when a homeowner wants to rent their house for short terms. In such a case, you should speak to your lender and gain consent to let out the property. This could be a short-term option for you and solve the issue instantly.
What is Consent to Let, and how can you get it?
A consent to let is an agreement made with the lender to alter the conditions of your mortgage agreement to allow you to rent out some or all of your home for a short period. Many lenders are willing to give this consent, which is not hard to obtain; however, some conditions need to be met, such as being up to date with all your normal mortgage payments. Also, showing proof of a legal tenancy agreement is needed. It is important to remember that consent to let is a short-term agreement and not long-term, so if you are considering renting out in the long term, switching to a buy-to-let mortgage is a more suitable option for you.
2. Change your residential mortgage to buy to let
Switching your residential property to a buy-to-let is the long-term solution for renting out your property. This could easily be done by discussing the situation with your lender. You can find more information in this tutorial:
The Bottom Line
Renting out a property that is not a BTL is possible; however, it should be done in the right way. Making sure you communicate with the lender is key, and updating them on any changes, you wish to make. It’s always a good decision to speak to a specialist adviser before making such decisions.
