Many homeowners face situations where they have no other option but to rent out their home. Often there are periods where a residential property is unoccupied, such as when unable to find a buyer during the moving process, or when temporarily relocating for work.
Standard residential mortgages don’t usually allow letting of the property, but a consent to let agreement from a mortgage provider gives short-term permission.
Some mortgage providers are raising the mortgage rate by as much as one per cent during consent to let periods, resulting in cases where accidental landlords are paying more than if they had re-mortgaged to an equivalent buy to let type loan.
What is Consent to let? A consent to let agreement (also known as ‘permission to let’) alters the conditions of a standard residential mortgage to temporarily permit letting.
They are typically issued for fixed periods of up to around two years, so are not a long-term solution for landlords, but can be handy as a stopgap during a difficult period.
When consent to let runs out, the mortgage reverts to its original conditions. If borrowers want to continue renting out their property, they will likely have to re-mortgage to a buy-to-let loan with rates that are usually significantly higher.
For those interested in property investing, a consent to let agreement can be a good place to start, as it gives the experience of being a landlord without the cash requirement of buying a property specifically to let. Having some landlord experience can also make it easier to access certain buy to let loans in the future.
Most lenders will be happy to grant consent to let, but there are usually some requirements such as:
- The rental income must cover the mortgage payments
- The borrower must have been living in the property for at least six months
- The borrower must have a certain level of equity in the home, usually around 25%
What do mortgage providers charge for consent to let?
Consent to let charges vary depending on the mortgage provider - some provide it for free whilst others charge a fixed fee or raise the mortgage rate.
Here are the current charges for some of the UK’s most popular lenders. Remember these are all subject to change, so check before making any decisions.
Nationwide Building Society increases the standard mortgage rate by one per cent after the property has been rented for six months during the consent to let period;
Yorkshire Building Society increases the mortgage rate by one per cent during the consent to let period;
Santander will charge a fixed fee of £295;
Barclays will not charge for consent to let;
Lloyds Banking Group may apply charges when tenants have moved in but do not state upfront what they will be.
When is it cheaper to remortgage to a buy-to-let loan?
All else being equal, lenders charge more when lending to property investors than homeowners. This is because of the different risks involved – an investor would expect tenants to cover the mortgage payments whereas a homeowner would make payments with their salary, for example.
Although borrowers can expect to pay more in interest when shopping for a buy to let mortgage over the residential equivalent, the difference in absolute per cent can be quite small, particularly when loan sizes are small relative to property value (low loan to value).
If a current residential mortgage rate plus consent to let charges is lower than the equivalent buy to let rate, then consent to let is likely the cheapest option. However, if a lender is charging a substantial rate increase that pushes the rate above an equivalent buy-to-let loan, it may be cheaper to remortgage. In some cases, if there is significant time left on a current mortgage deal, early repayment charges may out way the benefits of re-mortgaging.
*Matthew Whitfield is director of Varbes.com.
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