Does renting out flat change mortgage rate?

dorset_nurse

They will ask you to pay them money to change your mortgage to a BTL, and/or increase your payments, or worse... (as above!)

agrinnall

Plus you may well find your buildings insurer playing hard to get if you had to make a claim and hadn't informed your lender of the change (I've seen at least one thread in which it was argued that the insurer shouldn't care about this but it's a big risk to take).

Paulgonnabedebtfree

It varies from lender to lender.
Personally I wouldn't feel comfortable with doing it behind the lender's back. This is particurly so with a flat as there is an extra body to inform (freeholder).
When I let mine out about 12 years ago (for 3 years), I had to ask the lender and the freeholder. Also, it had to be done via a letting agency. Although I had to "ask" them, apparently such things are usually a formality and it's more about letting them know.
Although most lettings will be reasonably trouble free, I feel that it is important to do it by the book (particularly with a flat) as there is so much that might go wrong.
For starters, with a flat, it is much easier to damage a neighbour's property e.g. flood/fire. If the insurer(s) haven't been informed, it may be possible to have an invalid policy. Buildings insurance is normally arranged via the freeholder as a block insurance. Same with insuring contents (if a furnished let). You need non standard insurance for this as normal contents insurance won't cover it. I think it used to be the case that such insurance was only available via letting agents (not certain about this though). Such insurance is more expensive as the risk is deemed to be higher (probably one of those instances where an insurer charging more for something is actually justified). Another reason why a lender will normally insist on using an agency is because they are better geared up to manage evictions. The lender might regard their loan as being more at risk if a mortgage payer is unable to move back in or unable to evict a non paying tenant.
Then there is the issue of council tax. Although charged on a property, if the authorities have not been informed of a change of occupancy, any non payment would fall to the mortgage payer. Also, it could well be illegal if the property was changing from single occupancy to two or more adults. This is because the council tax should go up.

This is all a potential minefield if things don't go smoothly and, for peace of mind, definitely worth doing by the book. I know it costs more that way but doing it secretly could be a false economy if things don't go smoothly. Also, bear in mind that the extra costs are tax deductible.
Bear in mind that if you rent out, capital gains tax might become an issue when/if you sell. I think this is less likely now though as the rules changed a while back.

When I rented out there was no increase in interest rate but there was an annual "permission to let" fee. Can't recall who my lender was at the time as I've switched a few times.

Yorkie1

Somebody posted relatively recently that lenders are increasingly using the credit reference agencies (I think it was) to monitor peoples' changes of address - so they'd pick up that you had moved and not told them.

Thrugelmir

agrinnall wrote: »

Plus you may well find your buildings insurer playing hard to get if you had to make a claim and hadn't informed your lender of the change (I've seen at least one thread in which it was argued that the insurer shouldn't care about this but it's a big risk to take).

Without the lenders permission then insurance cover can be voided by the insurer. Likewise even a Landlords policy is obtained.