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Consent to Let? Beware the dangers…

03.04.18

There are a myriad of reasons why you would want to rent out your current home in either the short or long-term, such as moving into another property with a partner or moving for work reasons, but there are an awful lot of things to take into account before you do.

Apart from the fact that as a landlord these days there are literally dozens of rules and regulations to follow, not least the fact that the property needs to meet new Energy Performance rules as well as ensuring your property is safe, changing your buildings and contents insurance, protecting your tenants deposits and even checking your tenants right to rent, to name but a few.

What some people are missing however, is the way that this can affect your mortgage going forward, even that it could effectively turn you into a so-called “mortgage prisoner”.

Although many lenders are now pretty good at granting consent to let, especially with a good reason, the issue can arise when your current mortgage product comes up for renewal.

Once your property is let out, some lenders will not allow you to transfer onto a new residential product, known as a Product Transfer, at the end of your existing product term. This means that you either have to languish on the higher variable rate once the term ends or look to remortgage elsewhere.

Again, because the property is now a rental property this means looking at a Buy to let mortgage which comes with a whole new set of rules and regulations. With a Buy to let mortgage, lenders look at the rental income that is obtained that needs to be sufficient to cover the monthly mortgage payment at a stress tested amount.

Dependent on your tax position, (due to recent tax changes for BTL landlords lenders often have a different calculation whether you are a basic or higher rate tax payer), as a rough rule of thumb the rental income has to cover the monthly mortgage interest payments at an assumed rate of 5.5% times by 145%. Different lenders have different calculations, but it may well be that as a result the rental you are receiving does not fit their criteria to cover your existing mortgage amount.

Some lenders will however be able to adopt a “top-slicing” policy if you have sufficient income left after your existing monthly outgoings are taken into account to cover any rental shortfall.

The long and the short of it is that you should be looking at taking some professional advice, from both a tax adviser and mortgage adviser to ensure that you are not left in the lurch when the time comes to review your mortgage requirements.

Whilst getting consent to let may seem easy and beneficial, navigating the hidden dangers needs careful planning.