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The risk of being a ‘secret’ landlord: what to do if you want to let out your home

How to go from a homeowner to a landlord legally

Becoming a landlord is getting tougher, according to new data from lender Kent Reliance. A quarter of landlords who sought a loan in 2017 found it more difficult than previously. A third were asked for higher deposits, while 6% were rejected altogether.

In a challenging market, it might be tempting to bypass the traditional process of becoming a buy-to-let investor, either by turning your existing home into a rental property, or by secretly buying an investment with a homeowner mortgage.

This, however, is fraught with risk – and could even lead to mortgage fraud. It’s possible to go from homeowner to landlord legally – but you need to understand your obligations.

  • An expert mortgage broker can help you find the right buy-to-let mortgage for your circumstances. For impartial, expert advice call Which? Mortgage Advisers on 0808 252 7987

What if I become a landlord ‘accidentally’?

While you might buy a property with the intention of living in it, life can be unpredictable. You may move in with your partner or take a job opportunity overseas, leaving your former home empty and available.

But before you put up ‘To let’ signs, you should talk to your lender. If you bought your home with a residential mortgage – meaning that you as the owner would live in it – the lender will need to provide you with ‘consent to let’ before you take on a tenant. In addition, it will usually charge you at a higher interest rate and include an administration fee.

Taking in a lodger won’t require any kind of special consent. But for someone to be a lodger, you’ll have to live at the property as well. As soon as you move out and hand over control of the property to your lodger, they’re likely to be classified as a tenant.

Find out more: How the rent a room scheme works

What happens if the lender says ‘no’?

There’s no guarantee the lender will grant you their consent, especially if your property seems unlikely to attract interest from tenants. Generally though, lenders will take a ‘commonsense’ approach, according to David Blake from Which? Mortgage Advisers.

Lenders won’t usually expect you to meet the same criteria as someone applying for a buy-to-let mortgage – for example, the lender may give you consent to let even if you don’t have 25% equity in your home or meet the higher stress test criteria.

If they do refuse, you may need to re-think your plans, or consider re-mortgaging or even selling. For this reason,  think carefully about future changes when applying for a mortgage – if there’s a possibility you’ll want to let out your property, choosing a flexible mortgage product may make this easier to do.

Find out more: Buy-to-let mortgages explained

What if I don’t tell the lender I’m moving out?

Paying higher interest could be a daunting prospect, even with rental income coming in. You might be tempted to just move out and not tell the lender – but this could be a serious mistake.

Letting out your property without the lender’s knowledge may breach the terms and conditions of your mortgage contract. In the worst case scenario, the lender may call in the outstanding mortgage amount – potentially forcing you to sell up fast.

Being upfront with your lender will keep the transition from  home owner to landlord as smooth as possible, and keep you out of legal hot water.

Can I buy a buy-to-let on a homeowners mortgage?

Buying an investment property on a homeowner’s mortgage is a breach of your contract – and may even amount to mortgage fraud.

This may be tempting, because the interest rates and required deposits on a home are generally lower on a residential mortgage. Many buy-to-let mortgages require deposits of 25%, while home buyers can often secure a mortgage with as little as 5% or 10%.

Since January, the Prudential Regulation Authority (PRA) has also introduced ‘stress testing’ of a buy-to-let investors, to see if they could still repay a mortgage if interest rates were at high of 5.5% – a high hurdle for landlords to clear.

And lenders have ways of finding out if you’re planning to let the property. Red flags may include the property being an unreasonable distance from your place of work, or being too small – or too large – for your family size.

Lenders are known to check rental listings sites to see if your property is being advertised, or check the electoral roll to see if you live at that address.

Misrepresenting the property as a residence may also invalidate your landlords’ insurance, leaving you liable and out of pocket if anything were to happen.

Find out more: Becoming a landlord

What if I plan to live in my buy-to-let?

While still rare, a growing scenario is first-time buyers applying for a buy-to-let mortgage, with the plan of living in the property themselves. David Blake says this is most common among buyers who have large deposits but worry their income levels may not pass the affordability criteria for first-time buyers.

This is a breach of your contract, and could put you in a difficult situation if your lender found out.

When applying for a mortgage, your best bet is to be honest and open with your lender, David Blake says: ‘The good news is most lenders adopt a common sense approach to changes in circumstances and are open to the letting of residential property.’

‘Lenders just want to know what’s happening and so insist on giving their consent to let first.’

Your home may be repossessed if you do not keep up repayments on your mortgage. Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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