Should I tell my mortgage lender?

Jim28

Hi all

I have a mortgage with Northern Rock and I am thinking about renting out my flat. I have read all their their blurb about informing them and getting their written consent. They also say that they will probably charge a higher rate of interest and slap on an administration fee of £100.

My question is this: should I tell them or just carry on a let out the property?

Do people have any experience on this matter?

I would appreciate to hear peoples views on this matter.

Many thanks in advance!

Jim

stanmoresaver

Under the terms f your mortgage, you are required to- many letting agents will require sight of the consent to lease, and you will have to vary your insurance..

So yes.

SS

MortgageMamma

As above, yes. Anything less would be deemed as a breach of the terms of your mortgage contract and they could even reposess on this basis.

Jim28

stanmoresaver wrote:

Under the terms f your mortgage, you are required to- many letting agents will require sight of the consent to lease, and you will have to vary your insurance..

So yes.

SS

What if I do not use a letting agent and do it myself? Are you talking about buildings insurance?

MortgageMamma

Youhave to declare rental income to the inland revenue and infrom your insurers you are letting the property out, they in turn my inform northern rock. Not just that you could get found out if the tenants take credit at that address or under other circumstances. I would recommend you be upfront with your lender. if you don't like their policy swap your mortgage for a buy to let:cool:

Robert_Sterling

Jim28 wrote:

Hi all
My question is this: should I tell them or just carry on a let out the property?
Jim

Your question is a bit like "Should I pay for my shopping or should I shoplift?"

Jim28

Robert_Sterling wrote:

Your question is a bit like "Should I pay for my shopping or should I shoplift?"

So you are saying that if I do not declare that I am letting my flat I am stealing from the Mortgage Lender Robert?

Ian_W

Can't speak for Robert but IMO - YES.

Your agreement with the lender requires you to inform them if you wish to let the flat and allows them to charge you an admin fee and/or higher interest rate. You're asking about not letting them know so you can deprive them of what is rightfully theirs under the agreement you have with them. Seems fairly straightforward to me and on the face of it would probably amount to a criminal deception. I'm sure thousands of people do what you're suggesting and don't get caught or end up in court, but the same applies to many other types of theft or fraud - it doesn't make it right though.

The reason the requirement is there isn't simply to make money [though, of course, they do] it's because the risk to the lender is increased. If you default on a residential mortgage the lender can, as a last resort, get a court order to evict you. They may not be able to get a court order to evict your tennant until the end of their agreement and therefore can't recover the debt as quickly.

If you do go ahead do bear in mind your lender will still have the flat as a contact address so you need to be able to trust your tennant to pass on any letters etc and you may have some explaining to do if you want a residential mortgage elsewhere.

AndrewSmith

The other issue is that a residential mortgage is regulated by the FSA, whereas a mortgage on a let property (buy to let) is not. Each has it's own terms and conditions attached. ALso the property would then not be your main residence and, under tax law, could be liable for CGT should you sell.

You will also find that your current buildings insurance will not be valid if you decide to let the property without the permission of the lender, they do own the mortgaged element after all, so have every right to know what you are doing with it.

If you loaned me £20,000 secured on a car you would want to know that I was only using it for domestic driving. You would be a bit annoyed I guess if I began using it as a taxi or doing track days in it. You would also want to make sure that I had the correct insurance on the car to ensure that your investment was fully covered.

Same principle.

Andy

silvercar

In practice I know of people who get the tenants in and then inform the lender. Why? Because they are afraid that if they ask permission first the lender could say no. If they present a fait accompli they feel the lender is more likely to agree and not be so fussed about LTV ratios and rent to payments ratios. It also means they can show that the rent is actually coming in rather than being a forecast.

Jim28

Thanks all for your very helpful advice. I think after careful consideration I will stick on the side of the law and inform them.

I hope they do not charge me too much more mind!