If you’re thinking about renting out your home and you have an outstanding mortgage, you need permission from your lender. There are two ways to do this, depending on your circumstances. Here, we’ll explain the differences between consent to let vs buy-to-let to help you make the right decision.
What is consent to let?
Consent to let allows you to rent out your home temporarily, keeping your residential mortgage in place rather than having to change to a buy-to-let arrangement. It is a formal agreement that’s attached to your mortgage, providing you with a temporary rental solution while you’re unable to live in your home. Available on a short-term basis, it typically ranges between 6 and 24 months.
This permission is needed because a standard residential mortgage is designed for the owner to occupy the property. Renting out your property, even for a short term, has risks that are not catered to with your normal mortgage. As such, if you rent out your home without consent to let from your lender, you’ll be in breach of your mortgage terms.
Why might you need consent to let?
There are several reasons why you may need to move out of your home temporarily and wish to have tenants living there while you’re gone.
- You have to relocate temporarily elsewhere in the UK for your job.
- A short-term opportunity has become available to work overseas.
- As a serving member of the armed forces, you’ve been deployed or stationed abroad.
- You’re taking some time to go travelling.
- You’re moving in with a partner, relative or friend and want to rent out your home temporarily while deciding what to do with it in the long term.
- You have a fixed rate mortgage and want to move home before the fixed term has finished without being penalised by an early repayment charge.
- You’re in the process of changing to a buy-to-let mortgage but have waiting tenants and need consent to let in the meantime so that they can move in.
- You’ve purchased a new home but are still trying to sell your existing one.
By having tenants in your home while you’re away, your property is not left standing empty and is, therefore, more secure. You also benefit from receiving rental payments, giving you the funds needed to cover your mortgage payments.
Is it difficult to get consent to let?
It’s relatively straightforward to obtain consent to let. Lenders are generally willing to give you permission provided that you have a valid reason for wishing to rent out your home for a short term. You usually need to have owned your home for a minimum period, such as 6 months, and you may be required to have a minimum amount of equity in your property, such as 25%.
There are some instances when you may be refused, however. For example, if you have a history of missed mortgage payments or your mortgage is in arrears. Another example is if you bought your home via an ownership scheme, such as shared ownership. This is because the scheme provider, usually a housing association, will consider you to be subletting the property.
What is buy-to-let?
A buy-to-let mortgage is specifically designed for the purpose of renting out your property to tenants. As the owner, you cannot live in the property. As rental properties pose more of a risk than owner-occupied ones, buy-to-let mortgages come with stricter criteria and higher interest rates.
One requirement is a higher deposit, which is usually 25% of the purchase price. You also need to ensure that the projected rental income is high enough to satisfy the lender’s requirements. This is typically 125% of the mortgage payments, with some lenders insisting on a higher figure of 145%. So, for example, if the monthly mortgage payments are £1,000 and the lender has a 125% stipulation, the rental payments received will need to be at least £1,250 per month.
Can you switch from consent to let to buy-to-let?
If you decide to continue renting out your property on a more permanent basis once your consent to let agreement has ended, you can change your residential mortgage to a buy-to-let mortgage. There are two options for this.
The first is that you can ask your current lender whether they can switch your existing mortgage to a buy-to-let mortgage, which is called a product transfer. This is a convenient option that’s ideal if you’re happy to stay with your lender. However, it’s best to shop around so that you can compare their deal with those offered by other lenders.
That brings you to the other option, which is to change your existing mortgage to a buy-to-let mortgage with a new lender. This is called remortgaging. You may be able to find a more competitive rate or more flexible terms when looking elsewhere. Just be sure to compare all of the costs first, not just the mortgage rate. For example, check whether you’ll have to pay an early repayment charge with your current lender and what arrangement fee will be charged by the new lender.
Which is best? Consent to let vs buy-to-let
Whether a consent to let agreement or a buy-to-let mortgage is best for you depends entirely on your circumstances. If you only need a short-term rental solution for your home, then getting consent to let from your lender will suffice. If you wish to become a landlord on a permanent basis, however, then you’ll need to change your residential mortgage to a buy-to-let one. Here, we’ve detailed the pros and cons of each option to help you make an informed decision.
Pros: Consent to let
- Consent to let offers a cost-effective solution to a temporary situation.
- You won’t breach the terms of your residential mortgage.
- The interest rate for a consent to let agreement is usually lower than for a buy-to-let mortgage.
- Your mortgage payments are covered by the rental income while you’re away.
- You can try your hand at being a landlord before committing to a buy-to-let mortgage.
- You’re not penalised if you wish to move out before your fixed-rate deal ends.
Cons: Consent to let
- Your interest rate may go up and you may have to pay a fee to the lender.
- It’s only available as a short-term solution.
- Not every lender offers consent to let.
- Finding tenants can take time but you still need to make your mortgage payments.
- Not all tenants look after rental properties so there’s a risk that your property may be damaged.
- Even though it’s for a short term, you take on all of the responsibilities of being a landlord as well as the associated costs.
Pros: Buy-to-let
- This type of mortgage enables you to rent out your property in the long term.
- Your rental income covers your mortgage payments and, hopefully, provides you with some profit.
- An interest-only mortgage is typically taken out, which keeps your monthly payments lower and helps with your cash flow.
- Some costs are allowable expenses that can be offset against tax.
- It’s a good long-term investment opportunity.
Cons: Buy-to-let
- You have to pay a higher deposit and meet stricter criteria.
- The interest rate is usually higher for a buy-to-let mortgage.
- The projected rental income must cover at least 125% of the mortgage payments, although some lenders specify a higher requirement of 145%.
- If you opt for an interest-only arrangement, none of the capital is repaid and the entire loan has to be repaid at the end of the mortgage term.
- There are a lot of upfront and ongoing costs as a landlord, which you need to budget for.
- You have to take on all of the responsibilities of being a landlord.
Get the right permission in place before renting out your property
When you want to rent out your property, it’s imperative that you comply with the lender’s requirements. This ensures that you’re not in breach of your mortgage terms, which can have serious consequences. As such, ask your lender for their consent to let if you want to rent out your home for a short term. Alternatively, if you know that you want to be a landlord for longer and receive a regular rental income, change your current mortgage to a buy-to-let one.
Our mortgage brokers can provide you with impartial advice on both options, allowing you to make an informed decision. They can check that you meet the eligibility criteria and ensure that you understand the obligations you need to meet as a landlord, even on a short-term basis. They can also arrange your landlord insurance, which offers different protection from your standard home insurance. Give us a call on 01322 907 000 to discuss the ins and outs of renting out your home and the impact it will have on your mortgage.