Considering buy-to-let mortgages can be quite a bit more expensive than your typical residential mortgage it’s tempting, when renting out your former home, not to tell your mortgage company what you’re about to do and just stick with the cheaper percentage interest instead.
But it’s not wise.
Lenders are becoming more aware of the practice and many are launching crackdowns where they will look through electoral registers and even check letting sites. If discovered to be renting on a residential mortgage many landlords are being penalised.
In addition, there are substantial advantages a buy-to-let mortgage – which you’ll find, as you embark on your new adventure as a landlord, can actually be invaluable. Many of these pluses, such as tax incentives, are something that simply don’t exist in terms of a ‘normal’ mortgage. In the meantime though, here’s the run-down on what a buy-to-let mortgage will involve:
A buy-to-let mortgage is necessary in order to rent a property out to tenants (so their needs are safeguarded if anything goes wrong ie you default on the payments and the property is repossessed). However, were you to move back into the property yourself you would have to apply for a residential mortgage as you wouldn’t be covered by the former.
Consent to let
A buy-to-let mortgage from your financial lender is not a foregone conclusion. As with the first bullet point above they would want proof that your rent covered the payments.
During the recession many householders found it difficult to pay their mortgage and saw the only solution as renting out their property and moving in with a relative. Because of this type of scenario some lenders are agreeable to allowing those with a residential mortgage to rent for a limited period of time (usually up to a maximum of 12 months). They’ll charge a fee for doing so and insist on reviewing the situation at the end of the agreement. At that point they may insist the house owner then transfers to a buy-to-let mortgage or, in the worst case scenario, sold off.
Buy-to-let (or landlords insurance) is necessary because home insurance will only cover empty properties for up to a month at a time whereas in the case of the former the property can be empty for up to three months.
Landlord buildings insurance will cover damage to the structure of a building (ie through fire or flooding) while landlord contents cover will pay for the replacement of furniture and fittings which belonging to the homeowner eg curtains, TV etc. Liability insurance covers any visitor to the property being injured through a fault in the structure of the building ie a roof tile falling on their head.
Rent guarantee insurance is an added extra which means you’re covered should tenants fail to pay their monthly rent or you suffer any void periods (when you’re unable to find tenants).
Those looking to rent to three or more individuals who aren’t related may need to apply for an HMO licence. Licensing requirements are different in different areas - so please check with the local council. There are stipulations and conditions you, as a landlord, must oblige with prior to the license being granted. This covers issues such as fire safety regulations, number of bathrooms and your own suitability as a landlord.
Find out more information about buy-to-let mortgages and letting to tenants in general from our website Property Go-To Girl.
I'm Jacquie the Property Go-To Girl. I am passionate about property. I love to help people make the most out of their property investments!