If you currently have a residential mortgage and are considering renting out your home, whether it’s a change in circumstances or because you want to go travelling or your work is taking you to another part of the country, this guide is here to help. We’ll provide you with all the information you need to make an informed decision. 

There are several options available to you when you want to rent out your home while you have a residential mortgage in place, but the most suitable option will depend on your own circumstances and lender requirements.

Most, if not all, residential mortgages will stipulate that you cannot rent out a property without consent. Therefore, it’s important to check the conditions of your mortgage.

Letting out your home

When considering letting out your house, there are several options to choose from depending on your preferences and circumstances. Here’s an overview of some common options:

Check your mortgage terms 

One of the crucial initial steps to take when you’re thinking about letting out your home is to thoroughly review the terms of your current mortgage.

 This information is typically provided to you when you first applied for the mortgage, and you may have received it in the form of a mortgage agreement or other related documents. If you don’t have a physical copy on hand, you can contact your lender directly to request the details or reach out to your mortgage broker if you used one during the mortgage application process.

Checking the terms of your current mortgage is essential because it can help you understand any restrictions or requirements related to renting out your property. 

Consent to let 

A common option for people who want to let out their homes is obtaining consent to let from their mortgage lenders. Typically, mortgage lenders require that you have lived in the property for at least 6 months before requesting consent. 

This option is usually meant to be short-term, with some lenders granting consent for a year at a time and reviewing it periodically, while others may allow you to see out your current fixed rate period on consent to let. 

It’s important to note that some lenders may charge an admin fee or add a surcharge on the rate, while others may not.

To request consent to let, you would need to contact your existing mortgage lender. 

This type of mortgage can be ideal for someone who is tied into a fixed rate mortgage and cannot switch without incurring penalties, or for someone who cannot remortgage to a buy-to-let mortgage due to insufficient equity (typically a minimum of 25%). Consent to let mortgages can also be suitable for those who plan to let the property for a short period of time.

So my lender says I can’t let my property. Now, what do I do?

If your lender does not allow you to let the property out, the good news is that there are several options available to you. For example, you can consider switching to a buy-to-let mortgage if you are planning on letting the property out for the long term.

Buy to let 

If you are planning to let your home out for the long term, one option to consider is switching to a buy-to-let mortgage. Keep in mind that you will typically need a minimum of 25% equity in the property, and potentially more depending on the rental stress test imposed by the lender you apply with. 

Switching to a buy-to-let mortgage usually involves remortgaging to a new lender, and fees may be payable. Additionally, you must carefully consider any early repayment charges if you exit your current mortgage deal early.

Buy-to-let mortgages are usually available on both interest-only and capital repayment terms, and can be obtained with fixed or tracker interest rates. These types of mortgages are generally more suitable for long-term property rental and may not be ideal if you plan to live in the property yourself in the near future.

Let to buy 

A let to buy mortgage is designed for those who are looking to let out their current main residence while purchasing another property to live in. With a let to buy mortgage, you have the option to take out a buy-to-let mortgage on your current residence and a separate residential mortgage on the property you plan to purchase. This arrangement allows you to release money from your current property, which can be used to fund some or all of your deposit for the new property.

It’s important to note that if you decide to keep your current property and purchase another property, you may be liable for additional stamp duty. Stamp duty is a tax levied on property transactions and the rules regarding stamp duty can vary depending on your buyer status.

Remortgage costs and fees 

When remortgaging to a buy-to-let mortgage, it’s crucial to be aware of the fees involved. These fees can vary depending on your status and the lender you choose. Some common fees associated with remortgaging to a buy-to-let mortgage include:

  • Exit fees: If you are leaving your current lender to switch to a buy-to-let mortgage, you may be charged an exit fee. This fee is typically levied by your current lender as a penalty for ending your existing mortgage agreement early.
  • Lender arrangement fees: Many lenders charge arrangement fees for setting up a buy-to-let mortgage. These fees can vary in amount and may be payable upfront or added to the overall mortgage amount.
  • Mortgage broker fees: If you work with a mortgage broker to help you find and secure a buy-to-let mortgage, they may charge you a fee for their services. This fee can also vary depending on the broker and the complexity of your mortgage application.
  • Conveyancing and survey fees: When remortgaging, you may need to pay for conveyancing and survey fees to legally transfer the mortgage from your current lender to the new lender. These fees can vary depending on the complexity of the transaction and the property involved.

It’s worth noting that some lenders may offer incentives where they cover some or all of the conveyancing and survey fees as part of their mortgage product. 

Preparing to become a landlord 

Becoming a landlord in the UK requires several steps to ensure that you comply with legal requirements and protect your investment. Here are some important steps you should take:

  • Check your eligibility: Before becoming a landlord, check that you are eligible to rent out your property. This includes ensuring that your mortgage lender, freeholder, or leaseholder permits renting the property.
  • Obtain the necessary documentation: You will need to obtain an Energy Performance Certificate (EPC) for the property, as well as a gas safety certificate if the property has gas appliances. You may also want to consider obtaining a fire safety certificate, particularly if the property is a House in Multiple Occupation (HMO).
  • Landlord insurance : You should obtain landlord insurance to protect your investment in the property. This type of insurance typically covers damage caused by tenants, loss of rental income, and legal expenses.
  • Set up a tenancy agreement: You will need to draft a tenancy agreement that sets out the terms and conditions of the tenancy. This agreement should be signed by both you and the tenant.
  • Register the tenant’s deposit: You must register the tenant’s deposit with a government-approved deposit protection scheme within 30 days of receiving it. This is a legal requirement, and failure to comply can result in penalties.
  • Conduct a thorough inventory: Before the tenant moves in, you should conduct a thorough inventory of the property, including photographs of the condition of the property and any furnishings. This will help you to resolve any disputes about damage or missing items at the end of the tenancy.
  • Ensure compliance with regulations: As a landlord, you will be subject to various regulations, including those relating to fire safety, gas safety, and electrical safety. You should ensure that your property complies with all relevant regulations.
  • Provide the tenant with the necessary information: You should provide the tenant with information about the property, including the location of the gas and electricity meters, instructions for operating any appliances, and emergency contact information.

These are some of the key steps you should take when becoming a landlord in the UK. It’s important to seek professional advice if you are unsure about any aspect of the process.

Tax 

Rental income is considered as income for tax purposes and is subject to income tax at the applicable tax rates. As a landlord, you are required to declare your rental income to HM Revenue and Customs (HMRC) each year on your tax return. 

This includes reporting the rental income you receive from your property, as well as any allowable deductions for expenses related to the property, such as mortgage interest, property management fees, repairs, and maintenance. 

It’s important to keep accurate records of your rental income and expenses to ensure that you accurately report your rental income on your tax return and comply with your tax obligations as a landlord. Seeking advice from a qualified accountant or tax professional can be beneficial to ensure you understand and meet your tax obligations as a landlord.

How can Strive Mortgages help 

There are many factors to consider when letting out a property, and having an experienced broker who can guide you through all the options can be invaluable. If you’re thinking of letting your property and want to explore your options, we would love to hear from you.