Permission to rent out your property?
If you cease to live in a property that has a residential mortgage against it, you must disclose this to your lender straight away. Indeed, if you fail to gain their consent in advance, you will be in breach of your contractual agreement with them.
This is not a new requirement. It’s simply that in the heady days before the financial crisis, lenders didn't often check – and seemingly didn’t much care - whether borrowers were still living in the property concerned or not. But the property crash changed all that. Rather than lose their homes altogether, the advent of negative equity drove large numbers of hard-pressed and over-stretched homeowners into becoming so-called “accidental” landlords – and in order to avoid having to pay higher interest rates on their existing loan, or being obliged to switch to a more expensive buy-to-let mortgage, many opted not to tell their lenders. In response, lenders began actively pursuing those breaking the rules, trawling the electoral register, social media websites and lettings websites for signs that a property has been put up for rent.
In the worst-case scenario, if you were found to have rented out your home without the knowledge or consent of your lender, they would be within their rights to demand immediate repayment of the loan, in full. Needless to say, however, they would be unlikely to take such a drastic step – unless you were seriously in arrears. Exactly what they would do in such a situation would very much depend on the individual lender, but could range from insisting that you switch to a buy-to-let mortgage to charging you a one-off administration fee for their “consent.” Meanwhile, it remains to be seen what effect, if any, the new tighter rules on lending might have in regard to this issue – but they are hardly likely to make lenders more forgiving!
So, all in all, I would strongly advise against renting without first getting your lender’s blessing. Yes, it will cost you, but this is more than outweighed by the potential risks of not doing so – not least, since a breach of your mortgage agreement would almost certainly invalidate your buildings insurance, just when you might need it most…!
Paul Bonett F.N.A.E.A. M.A.R.L.A.
Chair team association