As a first-time landlord, the legal and financial responsibilities of renting out your property can feel daunting.
One of the most critical factors of renting out your property is letting your mortgage provider know about it. Undeniably, this is the most important (and often the first) step in the process.
Informing your mortgage lender is essential because there are potential consequences of not doing so.
Here’s why it’s important and how to go about letting your mortgage lender know.
Why you must inform your mortgage lender
- Legal requirement
When you initially took out your mortgage, the lender based their decision on the understanding that the property would be owner-occupied. Mortgage terms and conditions generally stipulate that the lender must be informed if there are any significant changes in the property’s usage, including letting it out. Failing to notify your lender can result in a breach of your mortgage agreement.
- Consent to let
Most residential mortgages do not automatically permit you to let your property. Instead, you must obtain “consent to let” from your lender. This consent essentially allows you to temporarily rent out your property under the terms of your existing mortgage. If the lender grants consent, they may charge an administration fee or slightly increase the interest rate.
- Buy-to-Let mortgage
If you intend to rent out your property for an extended period or indefinitely, you may need to switch to a buy-to-let mortgage. These mortgages are specifically designed for rental properties and often have different interest rates, terms, and lending criteria compared to residential mortgages. Switching to a buy-to-let mortgage can be a more permanent solution than obtaining consent to let.
Consequences of not informing your mortgage lender
- Mortgage agreement breach
If you fail to notify your lender and proceed to let your property, you will be in breach of your mortgage agreement. This breach can lead to severe consequences, including the lender demanding immediate repayment of the entire loan or even initiating repossession proceedings.
- Insurance issues
Your home insurance policy is likely based on the assumption that the property is owner-occupied. Letting your property without informing your insurer can void your insurance, leaving you unprotected against potential claims. Informing your lender ensures you can also adjust your insurance to cover rental risks.
- Financial penalties
Lenders have the right to impose financial penalties if they discover you have let your property without their consent. These penalties can include backdated interest at a higher rate, additional fees, or administrative costs.
How to notify your mortgage lender
- Review your mortgage agreement
Before contacting your lender, review your mortgage agreement to understand the specific terms and conditions related to letting your property. This will give you a clear idea of what is required and any potential costs involved.
- Contact your lender
Reach out to your mortgage lender directly, either by phone or in writing. Explain your intention to let the property and inquire about the process for obtaining consent to let or switching to a buy-to-let mortgage. Be prepared to provide details about the rental arrangement, such as the expected rental income and duration.
- Provide required documentation
Your lender may request additional documentation, such as a copy of the tenancy agreement, evidence of rental income, or an updated property valuation. Ensure you have these documents ready to expedite the process.
- Await approval
Once you have submitted your request, your lender will review it and decide whether to grant consent to let or recommend switching to a buy-to-let mortgage. This process can take several weeks, so it’s essential to plan accordingly.
- Adjust your insurance
After obtaining your lender’s approval, contact your insurance provider to update your policy. You will need a landlord insurance policy that covers rental-specific risks, such as loss of rent, damage caused by tenants, and liability.
Conclusion
Informing your mortgage lender about your intention to let your property is not only a legal necessity but a crucial step in protecting your financial and legal interests.
As a landlord, you must gain the appropriate consent or switch to a buy-to-let mortgage. This will ensure you keep compliant with your mortgage terms, maintain valid insurance coverage, and avoid potential financial penalties.