In this brief guide we are going to answer the question “ can I rent out my house on a normal mortgage?“
This is a question a lot of people have and getting the wrong answer to it could cost you a whole lot more than the income you gain from renting out your house on a normal mortgage.
Can I rent out my house on a normal mortgage?
You usually cant rent out your house on a normal mortgage unless you have gotten a consent to let.
Your mortgage lender will usually only grant a consent to let when you want to move but are struggling to sell your home or if you are struggling to make your monthly mortgage repayments and they feel that you would be able to cope better and make your monthly mortgage repayments by renting out your house.
There is no guarantee that your mortgage lender will grant you a consent to let. If your mortgage lender grants you a consent to let then this will likely be for a limited time. Your mortgage lender may also charge you a fee for granting you a consent to let.
You may also need to take out landlord insurance as a requirement of getting a consent to let from your mortgage lender. Without landlord insurance, you may not be covered if issues arise later down the line such as theft or damage to your property.
Most mortgage lenders will require that you have a minimum amount of equity in your property and have had the mortgage account with them for a minimum amount of time before they grant you a consent to let.
Why residential mortgage lenders don’t allow you to rent out your house
The reason why most mortgage lenders won’t allow you to let your house on a normal mortgage is because you will likely not be insured for any damages or issues that may arise from renting out your home and the potential liability you could face could be so large that it risks putting your home at risk and hence the security on which the mortgage lender has provided you with a mortgage at risk.
The home insurance you currently have will also not cover you for any damage or any possible liability which you may face as a result of renting out your house on a normal mortgage.
If you rent out your house on a normal mortgage such as a residential mortgage without informing your mortgage lender and getting a consent to let then you will likely be in breach of your mortgage agreement with your mortgage lender and your mortgage lender could call in your mortgage.
This means they will require you to repay the outstanding mortgage balance in full.
If you have a buy to let mortgage then you will not need to get consent to let your house as the mortgage agreement allows you to do so.
If you rent out your house on a normal residential mortgage without informing your mortgage lender then you could also be committing mortgage fraud.
Mortgage lenders have different rates for residential and buy to let mortgages. This is because the risk profile of these mortgages is different.
If you take out a residential mortgage with the intent of renting it out without a consent to let from your mortgage lender then you could very well be committing mortgage fraud.
The risks of getting a residential mortgage with the intent of renting the house out certainly overweight the benefits but many landlords still do this.
What are the risks of renting out your house on a normal mortgage?
There are a lot of risks associated with renting out your house on a normal mortgage.
The main risks are:
Your mortgage lender may call in your mortgage. This means you will have to pay up the outstanding mortgage balance in full within a short period of time.
The mortgage lender may change your residential mortgage to a buy to let mortgage at a much higher mortgage rate.
Your mortgage lender may add penalties to your mortgage or ask you to pay the penalties upfront.
If you have any landlord insurance then this may become invalid and if you claimed on it after an incident the landlord insurance will likely not payout.
You should also consider the tax liability of renting out your home as the rental income may have some tax liability
If you rent your house on a normal mortgage out without informing your mortgage lender and your mortgage lender finds out they could include a negative remark on your credit report which may make securing credit in the future much harder. You may even end up getting registered on CIFAS for mortgage fraud.
When renting out a property you will need to meet all local regulations and codes of conducts to avoid being on the wrong side of the law. You may want to seek legal advice about your obligations.
FAQs: Can I rent out my house on a normal mortgage?
Below are some of the frequently asked questions about renting out your house on a normal mortgage.
Do I need to notify my mortgage company if I rent out the house?
Yes, you may need to notify your mortgage company if you rent out your hose and your house is currently on a residential mortgage.
If you do not notify your mortgage company you could be in breach of your mortgage agreement.
Can I rent my house out on a residential mortgage?
Yes, you can rent out your house if it is on a residential mortgage but you will need to get a consent to let from your current mortgage lender if not you may be in breach of your mortgage agreement.
If your mortgage lender does not offer a consent to let then you will need to remortgage to a buy to let mortgage to rent out your house.
Is it illegal to rent a house without a buy to let mortgage?
It is not illegal to rent a house without a buy to let mortgage but you may be committing mortgage fraud you will be in breach of your mortgage agreement if you haven’t been given a consent to let by the mortgage lender and your house insurance may be invalid.
Can I let out my house with a residential mortgage?
Yes, you can let out your house with a residential mortgage but you will need to get a consent to let from your current mortgage lender so you are not in breach of your current mortgage agreement or committing mortgage fraud.
Do I need to change my homeowner’s insurance if I rent out my house?
If you rent out your house you will likely need to change your homeowner’s insurance to a landlords insurance if not your current homeowner’s insurance could be invalid in the event of a claim.
Can you convert a residential mortgage to buy to let?
Yes, you can convert your residential mortgage to a buy to let mortgage.
You should request this from your current mortgage lender but if they decline then you can get a remortgage from a residential mortgage to a buy to let mortgage.
If you need help doing this you can use a mortgage broker to search the remortgage market for the most suitable remortgage deals for you.
Can I have two residential mortgages?
Yes, you can have two residential mortgaged such as one for your main home and another for your holiday home.
The conditions to have a residential mortgage is that they must be a place of residence for you. You are usually not allowed to have tenants on a property which is on a residential mortgage.
Considerations for renting out a property on a residential mortgage?
Renting out a property on a residential mortgage is usually not allowed by most mortgage lenders and the terms of your mortgage agreement may expressly forbid you to rent out a property which is on a residential mortgage.
The reasons why renting out a property on a residential mortgage is a bad idea
In almost all cases you will not have landlords insurance if you are renting out a property on a residential mortgage. This could mean that if anything goes wrong with your property you may not be insured.
This will also put the mortgage lenders security at risk as you do not have any valid insurance on the home they have borrowed so much money on.
Lack of certification
If you are renting out a property on a residential mortgage you will likely not have the right certification from your local council for various aspects of your home when it is being rented out. This could mean that you may end up being fined by your local council and find it harder to get any such certification in the future.
Failure to follow regulations
There are many regulations when you are renting out a property to ensure it is safe and fit for purpose. These requirements are much more detailed than any regulations you may need to have on your residential property.
This means renting out a property on a residential mortgage could indicate that you are breaking some rules and possibly putting the lives of your tenants at risk.
In this brief guide, we answered the question “Can I rent out my house on a normal mortgage?”. If you have any questions or comments please let us know below.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.