I’m renting out my flat for the first time. Do I need to obtain permission from my mortgage lender?
If you become an ‘accidental’ landlord, perhaps because you wish to let out your home since you are working overseas or moving in with a partner, you must adhere to the same rules, legislation and lettings standards as a professional landlord.
You must organise gas and electrical safety checks, ensure furnishings meet Fire Safety standards and obtain an Energy Performance Certificate. And you need to inform HMRC as your rental income will be liable for tax.
But before all this, you should obtain ‘consent to let’ from your mortgage provider. This is permission from your lender to rent out your property (which you previously occupied yourself) to paying tenants.
Failure to apply for ‘consent to let’ before renting out your home is a breach of the mortgage contract and classed as mortgage fraud – deliberate non-disclosure could lead to a financial penalty or legal action.
Renting out your home could mean your lender offers you a buy-to-let mortgage to replace your existing residential mortgage – the interest rate will usually be 1% to 2% higher and the lending criteria stricter as buy-to-let loans are seen as higher risk.
Because of the higher interest rates, accidental landlords can be tempted to not inform their lender that they are letting their property. But if your lender discovers this mortgage fraud they could ask you to immediately repay your loan. You would have to declare this to other potential lenders who might then be unwilling to offer you a loan. 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 lost interest.
Non-disclosure could also invalidate your buildings insurance policy. You will need a specialist landlord’s insurance policy.
If you own your own home and do not have a mortgage, clearly a ‘consent-to-let’ isn’t necessary, but you do still need to inform your insurance company and HMRC.
Marc Von Grundherr
Benham & Reeves Residential Lettings