We're renting our home out: do we need to inform our mortgage provider?

Hannah-Holly

Hello

Very grateful to anybody who can provide help!

Okay, here is our situation. We have a four bedroomed detached family home on a fairly new estate which we bought in September 2005 for £205,000. There was a deposit of £85,000 put on the property meaning we took out a mortgage for £105,000.

My husband has been offered a "chance of a lifetime" job in London so naturally we have to move (since he does not fancy a 3 hour commute!) However, we are reluctant to sell our home mainly because it is most certainly not a seller's market just now. So we have decided to let it out, and we are buying a flat in London so will be responsible for two mortgages.

I have spoken to two letting firms. One have stated we need to inform our mortgage provider we are letting the house out, the other have made no mention of this. Given that we have had to pay stamp duty, solicitor's and mortgage arrangement fees for the property in London, in addition to obtaining gas and electricity certificates and professional cleaning services, not to mention the deposit for the London flat, things are very tight just now as it is!

So, do we *need* to tell the bank we won't actually be living in the property? Or, is it just reccommended?

Any replies welcome, thank you.

franklee

Depends on if you want to commit mortgage fraud I suppose.

As a tenant I certainly ask if the landlord has consent to let as it makes a difference to the tenant should the landlord get into arrears. Without consent to let the tenant has no protection under the tenancy agreement and thus could get chucked out without proper notice should the lender repossess. Then the tenant can sue the landlord for breach of contract, if the landlord looks to have any money left.

If the tenant finds out there is no consent he may tell the lender, I've done this before as it affected my security as above and I don't like being conned.

Basically you are changing the risk profile that the lender is lending you the cash under. So they really should know. I suspect this will become more stringent as the numbers of repossessions increase. A reputable letting agent should ask the landlord if there is consent to let. But if you use a less reputable agent and get a tenant who doesn't check you may well get away with it - unless things go wrong with the tenancy - which is more likely with a worse agent.

You do need contingency cash if letting out in case you get a tenant who doesn't pay rent or in case of repairs.

neverdespairgirl

Yes. And under most residential mortgages, it's not "telling" them, it's asking them, and usually paying a few hundred quid if they say yes. Who is your mortgage with?

dopester

Hannah-Holly wrote: »

Hello

Very grateful to anybody who can provide help!

Okay, here is our situation. We have a four bedroomed detached family home on a fairly new estate which we bought in September 2005 for £205,000. There was a deposit of £85,000 put on the property meaning we took out a mortgage for £105,000.

My husband has been offered a "chance of a lifetime" job in London so naturally we have to move (since he does not fancy a 3 hour commute!) However, we are reluctant to sell our home mainly because it is most certainly not a seller's market just now. So we have decided to let it out, and we are buying a flat in London so will be responsible for two mortgages.

I have spoken to two letting firms. One have stated we need to inform our mortgage provider we are letting the house out, the other have made no mention of this. Given that we have had to pay stamp duty, solicitor's and mortgage arrangement fees for the property in London, in addition to obtaining gas and electricity certificates and professional cleaning services, not to mention the deposit for the London flat, things are very tight just now as it is!

So, do we *need* to tell the bank we won't actually be living in the property? Or, is it just reccommended?

Any replies welcome, thank you.

Chance of a lifetime job sounds like improved pay.

Selling you house to upgrade to a more expensive house can work in your favour.

For example, and just for demonstration:

If you slashed 20% off your house for a quick sale = £205,000 - 20% (£41,000) = £164,000

If the house you are looking to buy is say £300,000... but you can negotiate the same 20% discount in this market = £300,000 - 20% (£60,000) = £240,000

dopester

Hannah-Holly wrote: »

However, we are reluctant to sell our home mainly because it is most certainly not a seller's market just now. So we have decided to let it out, and we are buying a flat in London so will be responsible for two mortgages

And I'm going to put it bluntly:

Are you assuming this is as bad as it is going to get? House prices have in many places seen 300% increases over just a short space of 12 years.

Ask yourself this? Do you really want to let out your existing property, which may now be "worth" say £300,000 (maybe)... and which you could perhaps realistically sell for 2006 prices.. or even your 2005 money back.

Can you rule out whopping further falls to come over the next 12 to 48 months, as average house prices have been dropping hundreds and hundreds of pounds per month, for the last 10 months or so?

Can you really rule that out?

Do you really want to be owning two properties, and see your existing one tank (Capital Economics are suggesting house prices may take 25 years to recover to 2007 peak price)... AND the same for your new property of say £400,000?

Where would say a 40% house price crash (and there are many who think it will be worse) leave you financially on two houses? Potentially in a very big hole I would have thought and walking around like Edvard Munch's "The Scream" for the rest of your life.

To me there is a lot of potential downside risk all for the want of not taking a relatively small hit on your first property in the expectation prices will stabilise and the market will recover... despite a UK bank going under and others having their solvency feared for and having required big rights issues or pleas for foreign money injection. However it is your decision.

Millburn_farm

As a landlord myself; the answer is a big fat yes you do have to tell your mortgage lender, on the plus side as you went in with such a deposit they can't really object, as a 20% deposit is normal on buy-to-lets

You will need a Landlords insurance policy as the one you have now will not do

Oh and you will also have to tell the Inland Revenue, it's taxable income, rent--mortgage interest--insurance costs added onto your income; you'll get the "short" form of tax form

tbs624

Hannah-Holly wrote: »

...... I have spoken to two letting firms. One have stated we need to inform our mortgage provider we are letting the house out, the other have made no mention of this.

Don't make the mistake of taking it for granted that any Letting Agent knows what they are doing. Anyone can call themselves a Letting Agent - no expertise, no training, no qualifications needed. Ultimately, you as the LL would be responsible if everything goes belly up, so you need to do your own research on the whole thing rather than just relying on a LA. Some LLs have a decent LA, many have one that they can't wait to get rid of, and many wouldn't ever use one. Go over to landlordzone.co.uk and check our your legal obligations as a LL especially with regard to Tenancy Deposits regs etc.

With so many people playing at amateur LLing now, many tenants will, as Franklee said, ask if you have notified your Lender that the property is being let as it can affect the security of their Fixed Term Tenancy.

There are insurance issues too - presumably you currently have bog standard home/buildings insurance, but you will need to replace this with specific LLs building/liability insurance.

If you are on a tight budget, have you considered what will happen if you have tenants who don't pay up regularly or if there is a major repairs issue on the rented property? You will have specific legal obligations to your tenant and you won't be able to say - sorry, can't fix that we're overstretched.

lynzpower

Sorry I just cant work this out.

3 hour commute into London from middlesex is nothing unusual ! People can spend 1.5 hours per datys geting to work and same home again my OH did the journey from E11 to NW2 daily. Yes it wasnt ideal, but it was a hell of a lot cheaper than the alternative.eg how many people commute into heathrow every day form other parts of london.

I dont know where abouts you are in Middlesex,but my understanding is that the market is totally flooded nowdays with unsold stock coming onto the rental market.

Why on earth would you be looking to buy in London at this stage in the cycle prices are dropping like stone! its unclear to me whether you have kids or not but if you do areyou sure you want to change them to a london school rather than where you are

Where is his job going to be based?

My fear is that you have a house in middlesex, you get voids in this climate. In the meanwhile, you have bought a flat in london thats also losing a lot of value. and all to be 30 mins closer into town. We are in Zone 1 and i takes OH 2 hours commute per day ( hour there & back) WITHIN zone 1. you could be risking losing thousands of pounds for saving one hour per day?? ALso how are you going to buy in london if your equity is tied up in the middlesex housE?

PasturesNew

I assumed the OP meant 3 hours each way ... and I thought a weekly commute might suit.

I'd certainly not go buying 2nd houses on the strength of having a new job. What if they change their mind, close down, relocate, get taken over, outsource, etc, in the next few years.

Two properties is more than twice the risk all round. There was only ONE bird in the hand for a good reason.

Hannah-Holly

Thanks for your replies.

Our mortgage is with Clydesdale bank.

We're not actuall in Middlesex now: we will be in a couple of weeks so I put that down rather than have to change it! At the moment, we live in Cheshire.

Selling the house isn't an option due to various reasons ... we may have to put renting it on hold if Clydesdale want a few hundred pounds, however.

Thanks again for comments.

Rabiddog_2

If you cant afford a few hunderd quid then you really shouldn't be thinking of renting it out. Yep, a once in a lifetime job, maybe because the truth of the job is so awful that no-one ever goes back? It might be an idea to do the commute at first, then after three to six months, decide on your options. Is the job up to scratch? is the commute so bad? what are the options? ALso house prices will be cheaper in six months, so you'll be saving money.