What are the pitfalls/wrongs of buying a property and then subletting

mary

My son has a healthy deposit, but house prices in this area are very high, he can command a reasonable mortgage based on salary, but the repayments on a single salary, according to him, means no life! So the thought passed through his mind of buying, working abroad again, and then subletting in his absence to work colleagues but without telling the lender. Now I know you shouldn't but can anyone specifically tell me the why-nots so I can enlighten him better!!!

abaxas

Subletting + incorrect insurance due to no mention of subletting + house fire = trouble.
Subletting + lying to mortgage company by not mentioning subletting = fraud.

Make sure he is sorted if he does let out. He needs to be organised for it.

lynzpower

if he is going to become a landlord there are a HUGE raft of legislations he needs to comply with.

I dont understand why he wouldnt tell his lender tho?

Snaggles

If he is intending to buy the property to let out on a permanent basis, then he would need a 'Buy to Let' or 'Commercial' mortgage, which are generally more expensive than traditional mortgages (and you often can't borrow as high a percentage of the property value). However, if he is just wanting to let it out short term (for example, for a couple of years), and will then move back to the UK, at which point the property will become his permanent residence, then some lenders will consider allowing him a 'normal' mortgage, and they will often give written permission for him to rent the property out for a set period of time (he would need this if he was wanting to let it out via a lettings agency/estate agents).

If this period expires and he still wants to continue letting the property out, they may insist that he remortgages onto a Buy To Let mortgage.

Best thing to do would be to tell any prospective mortgage provider upfront, and then he wont come unstuck in the future.

silvercar

I guess he wouldn't tell his lender from the outset because BTL mortgage rates are higher than residential mortgage rates. It is also difficult to get a BTL mortgage without owning a property.

If you bought a house to live in, moved in and then a few months later decided to go abroad and rent it out, at least your mortgage application would have been honest. You would then have only omitted to tell them you are temporarily going overseas and not asked for consent to lease as opposed to making a totally fraudulent application.

Then the question is how would they find out? Obviously you must keep up with your payments. The risk is when you give them a different correspondance address. Unless you arranged with royal mail to forward the mail and didn't tell them!

You would obviously need to take notify the building insurer. some lenders ask for proof of building insurance, this is not a problem as a lot of letting insurers also do residential insurance.

You would need to make sure that you can afford the payments while funding your life abroad and arrange for the property to be managed (and let) in your absence.

There are numerous regulations connected with letting, but most of it is common sense and with the internet and a good letting agent, I haven't had a problem.

Snaggles

Yes, but a good letting agent may well ask for written confirmation from the mortgage provider that they are aware that the property will be let out, and that they are happy for this to happen unfortunately (I deal with this a lot at work, and we regularly issue letters to this effect for our customers to provide to their agents).