Will my mortgage lender allow me to let out my home?
If you’re thinking of letting your property, whether on a long-term or short-term basis, here’s what you need to know when it comes to your mortgage.
Letting your home on a long-term basis with a residential mortgage
The majority of lenders will allow you to do this on what’s usually referred to as ‘consent to let’ or ‘permission to let’.
You would need to approach your mortgage lender before you let your property out. The lender will normally want to be satisfied that the likely rent will cover the mortgage payments, and a plausible reason. For example, if you’re planning on moving away or moving in with someone.
Once you let out your property the lender may put some restrictions in place, such as not being able to:
- Switch your mortgage to a new deal at the end of the current product
- Take out additional borrowing
- Add or remove a borrower
- Change the term
You may also find that the lender will charge you a fixed fee, and/or an additional percentage on top of your current interest rate during the time you have it let.
If the letting extends beyond a certain length of time, potentially 12 months, or past the end of your mortgage product expiry date, the lender might ask you to move to a formal ‘buy to let’ product, and even if they don’t, it might be better that you do, rather than pay a lender’s Standard Variable Rate (SVR).
Letting your property short term (For example Airbnb)
Letting your property out short term as a holiday let can be a desirable way of making an attractive amount of income when you are not occupying the property. However, not every lender will allow you to do this or there may be restrictions in place such as:
- You cannot let the property for more than 90 days in any 12-month calendrer period.
- You may not be able to let the property for than 30 consecutive days by the same individual.
- You may have to seek approval from your home insurance provider as this could invalidate any claim.
Additional considerations:
Changes to EPC ratings.
From 2025 it will be a legal requirement that any property in England and Wales that are to be let out will need an EPC rating of A to C and by 2028 for existing tenancies.
Lenders are already taking this into consideration when they have a consent to let proposal from one of their customers. Therefore, you should take this into account if you are considering letting your property. For more information read our recent article about this.
Will your lease allow you to do this
If you live in a leasehold flat you will need to confirm what’s set out in your lease agreement as you may find a condition that states you cannot let out the whole property on a long-term basis or as a holiday let. If it is unclear, you should speak directly with the freeholder of the property, management agency or a solicitor.
Tax allowance & capital gains tax
If you let out your whole property or as a holiday let you may have to pay income tax on the profit you have earnt and complete a self-assessment.
You may also have to pay Capital Gains Tax on the profit for the time you have let the property out. More information, this can be found on the government website: https://www.gov.uk/capital-gains-tax
If this has got you thinking, we’d love to hear from you. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
William Sproule – 10th February 2023
