Can You Rent Out a Property With A Residential Mortgage?

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Renting out your property can be a great source of income, usually allowing you to fully pay the mortgage each month with some leftover for maintenance and that all-important profit.

However, what’s on many people’s minds, especially those looking to get started in property investing is, “can you rent out a property with a residential mortgage?”.

No, usually you can’t rent out your property with a residential mortgage unless you notify the mortgage lender first. Some lenders will only require an application for a “Consent to Let”, however, others will require that you move to a buy to let mortgage, so make sure you know the risks.

There can be some scenarios where you can let out your property on a residential mortgage, also being fully aware of the risks can ensure you can plan for the worst if, for example, you’re already renting your property. In this post, I’ll explain further.

Benefits of Renting Out A Property with a Residential Mortgage

There can be a lot of benefits to renting out a property with a residential mortgage and not moving to a buy to let mortgage. Some of these benefits include:

  • A good way to start in property investing. When a lot of people get started in property investing, they buy their first house, live in it for a while and then they’re ready to move to a new propety, their keep their first home and rent it out. Whilst this can have other consequences, such as paying a more stamp duty on your second home, it does make things a lot simpler.
  • Residential mortgages can be cheaper. A lot of the time residental mortgages come with lower interest rates which lowers the monthly mortgage payment. This is mainly because the risk is lower to the lender as they’re basing the payments on your salary and not on rental payments which can have empty periods and other issues.
  • Lower deposit. A residential mortgage usually comes with a lower deposit requirement. I’m sure you’ve seen the 5% deposit banners everywhere, however a buy to let mortgage usually requires at least a 25% deposit.

These aren’t all the benefits of using a residential mortgage, although as you can see they do make for quite an appealing case. However making sure you understand the potential risks involved in using a residential mortgage is important, especially those if you don’t notify your mortgage lender.

Can you let out a property with a residential mortgage

Risks of Renting Out Property Without Buy To Let Mortgage

Most residential, sometimes called normal mortgages include a clause that restricts you from renting out the property without written consent to let from the lender. I explain exactly what consent to let is a bit further down in the post, although these are the risks you could face.

  • Increased mortgage rates to align to higher buy to let rates, increasing your monthly payments
  • Extra charges or penalties
  • Asked to repay your entire mortgage immediately by the lender
  • Impact to your credit score for violating your mortgage agreement (which will make it harder to secure a new mortgage if they ask you to repay yyour mortgage immediately)

Whilst these do seem like quite severe risks, getting consent to let can be relatively easy. It’s also not uncommon for mortgage brokers to recommend to their clients to get a residential mortgage when they know full well the property is going to be used as a rental property.

This is most likely because the mortgage provider will get their payment and commission either way and they’re often cheaper and easier to get. However, now you know some of the risks you can challenge accordingly.

A consent to let agreement allows you to temporarily change the conditions of your residential mortgage for a short period of time to rent out your home. A lot of lenders offer this, however, it usually comes with a number of conditions.

Your mortgage lender will usually check if you’re up to date with your mortgage payments and if not require you to make those payments. Also, they’ll want assurance that you plan to rent out your property using a tenancy agreement that’s legally acceptable, such as an assured shorthold tenancy.

This agreement can come with other names such as a consent to lease, or a lease permission period, however, mean the same thing.

Each mortgage lender may have different definitions of what they view as valid reasons for consent to let. Some may be more strict than others about what can qualify, however below I’ve listed some reasons that most lenders will consider valid.

  • You have to temporarily move for work and want a tenant to allow you to rent a property elsewhere.
  • You need to move in with a friend or family member for health reasons, both personal or for providing care to them.
  • You want to move in with your partner and rent out your property whilst you try and sell it.

If you just want to let out your property with no plan to return to live there then you’ll need to obtain a buy to let mortgage. You can ask for a consent to let agreement for the interim period until you can secure your buy to let mortgage.

Remember that your consent to let is usually only over a fixed period of time, so when this period ends your mortgage will revert to the original mortgage agreement. This means if you continue to rent out your property, you’ll be committing mortgage fraud.

You can either apply for an extension to the consent to let period or switch across to a buy to let mortgage. A mortgage broker will be able to advise which option may be best suited to you. There’s also the risk you are denied both of the options so make sure you leave plenty of time so you can plan accordingly.

Will the Type of Property Make A Difference?

No, the type of property will not make a difference from the lenders perspective, so if you have a house or a flat on a residential mortgage the treatment will be exactly the same and they’ll want to be notified if you intend to let out the property.

What could make a difference and what to watch out for could be if you have a leasehold property. This is where you don’t actually own the land your property is built on, which mainly affects flats, although is becoming more common on new build houses. This leasehold can come with conditions such as not being able to rent out your property

Can You Rent Out One Room On A Residential Mortgage?

Yes, you can usually rent out one room and have a lodger without getting consent from your mortgage lender as you’re also living in the property. If you’re trying to supplement your income with rental income, this can be an excellent way as you don’t have to pay for another property.

Depending on how much your mortgage payments are each month, having one lodger can pay for the majority of the mortgage, meaning you can live effectively mortgage-free.

Additional Costs of Letting Out Your Property

It’s also worth knowing what additional costs you should expect when do become a landlord start letting out your property so there aren’t any unexpected surprises. Being aware of all the costs can also make sure you charge the right amount of rent so you’re actually making the money you’re hoping for.

Some additional costs can include:

  • Tax on the rental income
  • Letting agent and management fees (depending on whether you find tenants and manage the property youself)
  • Repair and maintenance costs
  • Legal fees for creating contracts and potentially settling any tenant disputes
  • Landlords insurance

Summary

Overall, as you can see, you can rent out a property without getting a buy to let mortgage and keep using a residential mortgage, however it does come with certain conditions. In reality, a lot of people still do rent out their properties with residential mortgages and get away with it, however, there are also the stories of the unlucky people that get caught and end up paying the price.

If you do have any questions, make sure to speak to a mortgage advisor that can give you advice specific to your circumstances. If you are thinking of speaking to a mortgage advisor, this post I’ve written about what to ask a mortgage advisor may be useful.

I hope this post has helped and that everything goes well being a landlord, including collecting that joyous rental income!