The short answer to the question is, yes, you can rent out a
property without a buy to let mortgage. But only if you own the property
outright. If you still have a residential mortgage you cannot rent out your
home. And you certainly can’t buy a rental property with a residential
mortgage.
Why some landlords get caught out
People usually become landlords in one of two ways. They
either make a conscious decision to purchase an investment property on a buy to
let mortgage with an eye to renting it out. Or, and this may resonate with you,
they decide to rent out their current home because they are downsizing, can't
sell or have bought a home in another area. In this case the existing mortgage
on the property will be a residential one.
But there are other landlords who do knowingly buy a rental
property on a residential mortgage. This is a very small minority. But going
down this path is extremely risky and could have very serious consequences. If
you do this knowingly you may be committing mortgage fraud.
What's the problem with a residential mortgage?
It's very much a compliance issue. You can only use a
residential mortgage if the property is to be your home. If you intend to rent
out your new property you must have a buy to let mortgage.
What's the difference between a buy to let and residential mortgage?
The biggest difference is cost. A buy
to let mortgage will typically demand a higher deposit and the monthly
repayments will be more than for a comparable residential mortgage.
In addition, not all lenders offer buy to let mortgages. But
specialist brokers will be able to find the best available deals.
What do I do if I have a residential mortgage?
As we explained earlier if you're an accidental landlord you
will have a residential mortgage. So, you do need to take action to make sure
you're not in violation of the terms of your mortgage. You need to contact your
lender as soon as you make the decision to rent out your property. And before
you set about looking for a tenant.
It's likely your lender will convert your mortgage to a
suitable buy to let product. They may charge you a fee for doing this. It's
also likely the premiums
will be higher. But despite how painful that is it's a pain you have to put
up with. And it's much more palatable than being in non-compliance as we'll
explain.
Why should I worry about the type of mortgage I have?
If you're renting out a property with a residential
mortgage, you're highly likely to be breaching your mortgage agreement. The
consequences of this will vary on your lender. But sanctions could include:
·
You have to immediately repay the loan in full.
·
You may have to pay extra fees or penalties.
·
Your residential mortgage will be converted to a
buy to let mortgage.
But the repercussions go beyond any actions the lender may
take. Your landlord insurance will no longer be valid. Your building will not
be insured. Needless to say, this would have a devastating financial impact on
you should anything happen to the property.
If you’re currently renting out a property and have a
residential mortgage you should contact your lender immediately.
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