Consent to Let – how to rent out your home with a residential mortgage?

With the most popular type of mortgage in the UK, which is a residential mortgage, one of the conditions of the mortgage agreement is that the purchased property cannot be rented out. As investment mortgages have higher interest rates, banks enforce this ban and sometimes sue dishonest customers or eventerminate their agreements. However, if you bought your home to live in and now want to earn money from it, this is possible without having to remortgage. In this article, we will try to explain an alternative solution, namely Consent to Let.

Why do banks not allow properties covered by a mortgage to be rented out?

Residential mortgages are generally cheaper – banks grant them to meet one of the most important needs of each of us, which is to secure a roof over our heads. As the risk of insolvency of an average person in full-time employment is rather low, the bank does not need to charge high interest rates.

It is also worth mentioning the various programmes and concessions available in connection with the purchase of residential property. One example is the popular First Time Buyer Status, which aims to make it easier for young people to buy their first house or flat. Although the selection criteria are set from above, the internal policies of many lenders also favour individuals rather than businesses.

Finally, it is worth adding that the procedure for granting investment mortgages is completely different. Buy-to-Let mortgages (i.e. mortgages granted for rental properties) also have higher interest rates, which inevitably makes them more profitable for the lender. As a result, allowing borrowers to rent out a flat purchased with a mortgage would mean losses for the bank. However, as we mentioned in the introduction to this article, there is one exception.

What is Consent to Let?

In some cases, the bank may issue official consent to let the property. This statement is called Consent to Let and allows the borrower to sign a contract with the tenant without violating the terms of the mortgage. The key aspect of Consent to Let is that the bank grants consent for a specific period of time, so the rental period must be fairly short – usually a maximum of several years (up to 27 months at HSBC, up to 12 at Halifax and Virgin Money) This means that applying for Consent to Let is not applicable if you want to move out of the property and fully convert it into a rental property. The bank will always ask about your plans, so if you intend to move out permanently, Consent to Let does not make sense and the lender will most likely not grant it to you.

If you want to obtain Consent to Let, the most important thing is that you want to rent out the property for a certain period of time and then return to it and continue living there. However, this is not a strict rule – with the right conversation with the bank, Consent to Let can serve as a kind of bridge, acting as a temporary solution before switching to a Buy-to-Let mortgage. However, it is important not to lie to the bank – you can talk and negotiate with the lender, but if the bank decides that your statement was inconsistent with your intentions from the outset and was purely for investment purposes, it may consider this to be fraud and take action.

In what cases is it worth applying for Consent to Let for a mortgage in the UK?

Below are examples of situations in which Consent to Let may be applicable:

• Temporary relocation – the most common situation in which borrowers decide to opt for Consent to Let. Changing jobs,returning to the family home or moving in with a new partner are perfect examples of when Consent to Let can be used.

• Moving to a new home before selling the current one - if a person has already purchased a new property and for some reason needs to postpone the sale of their old home, renting it out for a few months is a good solution. However, if they do not want to sell their old home and rent it out permanently, the solution in this case would be to remortgage and choose a Buy to Let mortgage;

• Separation of co-borrowers – in such an unpleasant situation as divorce, it can be difficult to make a quick decision about the future of the property. To gain more time and at the same time not live together, the solution may be to rent out the property for a while;

• Financial difficulties – unpaid mortgage instalments can pose a real threat to your mortgage agreement. If you find yourself in a situation where you have trouble paying your instalments, one solution may be to rent out your flat and use the rental income to pay them off.

• Emigration with an uncertain return plan – the bank may grant you permission to rent out your property if you are moving but are not sure whether you will return. This gives you time to make a calm decision;

• Waiting to meet the conditions for converting a mortgage into a Buy-to-Let mortgage - if the property owner intends to convert it into a rental property but does not yet meet the necessary conditions, they can request permission to rent it out for the time being and move to another flat.

Will the bank raise my interest rates if I use Consent to Let?

Many people worry that if they apply for Consent to Let, the bank will increase the interest rate on their mortgage or demand an additional fee. Unfortunately, this is possible, although not in every case.

In the case of Consent to Let, each application is considered by the bank on an individual basis – in some cases, borrowers can rent out their property without paying a penny more, while in others they will be charged an additional fee or an increased interest rate. As for the fee, it is usually between £100 and £300 per year (£120 at NatWest, £125 at Virgin Money, £295 at Santander) . If the bank decides to increase the interest rate instead, it is usually 0.5% or 1% per annum (0.5% at Halifax and NationWide, 1% at Santander). This is a lot, but still much less than for buy-to-let mortgages.

How to obtain Consent to Let?

To apply for Consent to Let, first contact your lender – each institution has a different procedure. You will most likely receive a form that you will need to fill in with your details and the reason for your application.

To maximise your chances of obtaining consent, it is worth doing some research and finding out your bank’s policy on granting Consent to Let. You can find information on this subject on the bank’s website and in the documents you will receive from us when you sign the mortgage agreement. Another solution is to contact the lender directly – simply asking the question will never have any consequences, and at the same time it will effectively dispel your doubts.

Once you have familiarised yourself with all the conditions, write an application. Usually, the following wording will suffice:

‘I am starting a trial period at a job in another city. I am unable to commute daily from my current place of residence, so I need to move temporarily. I need permission to rent for a period of X months, during which time I will decide whether to stay in the new place permanently or return to my current location.’

In addition, remember that banks usually require at least 6 months of residence in the property before granting Consent to Let - the longer you live in the property, the lower the risk that you are trying to use the bank’s flexibility for your own purposes.

Summary

If, for some reason, your property is going to remain unoccupied for a certain period of time, it is worth considering applying for Consent to Let and renting it out for that period – this will allow you to earn money from it for free or for a small additional fee. Remember that renting out a property while paying off a residential mortgage (granted for residential purposes) is a breach of the mortgage agreement and may have various consequences. It is important to note that Consent to Let does not apply if you plan to rent out your property permanently - it is a consent granted for a specific period of time, so if your plan does not include returning to the rented property, familiarise yourself with the Let to Buy strategy.