What actually happens if you rent out your property and don't tell the lender?

moneysaver45

Hi everyone,

I'm thinking about buying a property to rent out, but I don't want to pay the ripoff interest rates of a buy to let mortgage compared with a residential one. If I told the lender I was going to live in the property, and so got granted a residential mortgage, is there any realistic way they would actually find out? What would actually happen if they did find out? (assuming all payments are up to date).

I'm not interested in any 'moral' arguments for telling the lender- as far as I'm concerned the increased interest rates are an outrage, banks make plenty of money as it is and I don't see why I should have to pay 40% of the value of the property up front compared to 25% if it was residential.

I'd just like to know if there's any realistic chance of the lender finding out, and if so, what the 'sanctions' could be. Cheers.

Niv

I may be wrong, but as I understand it if you got caught then basically you are in breach of your mortgage agreement and the mortgage complant can ask for all their money back, I do not know if there are additional charges on-top of that nor do I know if there is a specific time frame to pay back the money (i.e 30days from them finding out etc)

Basically, imo, it is stupid to go into this planning to be in breach of your mortgage from day 1.

Niv

Itismehonest

Fraudulently gaining credit (which covers mortgages AFAIK) can mean up to 10 years, I believe.
Silly move, better to pay the extra interest.

Lovelyjoolz

I'm confused. What "ripoff interest rates" do you mean? I'm currently paying 2.69% ABR on my BTL mortgage. I haven't found a residential mortgage to come close to it.

Perhaps you are just a bad credit risk?

moneysaver45

Niv wrote:

I may be wrong, but as I understand it if you got caught then basically you are in breach of your mortgage agreement and the mortgage complant can ask for all their money back, I do not know if there are additional charges on-top of that nor do I know if there is a specific time frame to pay back the money (i.e 30days from them finding out etc)

If the only sanction for getting caught is having to pay back the additional interest, then I'd argue you're no worse off than if you paid the ripoff interest rate to begin with. You get a chance to 'get away' with it, so to speak, and even if caught you only end up paying the same as someone who told their bank right away would.

Itismehonest wrote:

Fraudulently gaining credit (which covers mortgages AFAIK) can mean up to 10 years, I believe.
Silly move, better to pay the extra interest.

Now that sounds pretty serious- has this actually ever happened to anyone? Or is it just something that 'in theory' could happen (I'd find it very difficult to believe any judge in the land would give someone 10 years for not informing their lender that they were letting the property).

Lovelyjoolz wrote:

I'm confused. What "ripoff interest rates" do you mean? I'm currently paying 2.69% ABR on my BTL mortgage. I haven't found a residential mortgage to come close to it.

Perhaps you are just a bad credit risk?

Well, looking at price comparison sites, buy to let mortgages are more expensive in terms of interest rates than residential mortgages in general. And the fees for setting them up are much higher too. Basicaly it ends up that the bank actually takes the lions share of the profit which is, well, ridiculous.

SuzieSue

Apart from the risk of getting caught by the lender, the biggest risk you are taking is the your landlord's insurance will not pay out if your property is damaged eg by fire or flood.

The insurance company could take the view that you didn't disclose that you didn't have consent to let or a buy to let mortgage and use that as an excuse not to pay out. I don't know anyone that this has happend to, but others on here say they do.

Lovelyjoolz

moneysaver45 wrote: »

Basicaly it ends up that the bank actually takes the lions share of the profit which is, well, ridiculous.

Still confused. My fees for the BTL were half what I paid for my residential mortgage and the interest rate is very good. Perhaps I have been lucky to find such a good deal then? But I can't be the only LL with this particular mortgage deal.

moneysaver45 wrote: »

Basicaly it ends up that the bank actually takes the lions share of the profit which is, well, ridiculous.

Which profit is the bank taking exactly?

The interest rates and fees for BTL should be higher than residential. They should be comparable to corporate rates, because BTL are sold on a business-to-business. Renting out properties is a business. Maybe if more people understood this, perhaps there would be fewer 'hobby Landlords' making a mess of things.

princeofpounds

It depends a lot on the attitude of the lender. Prior to the crunch, I think they would always turn a blind eye more or less.

Now, the least they are likely to do is charge you the BTL and backdate the amounts if they can.

It's also very common now to see mortgages where there is a residential rate, a BTL rate, and then the agreement has a clause which means if you let it out without permission you pay BTL+x% (backdated).

What they can do is partly to do with what sort of contract you have signed.

Ultimately, they could just ask for their money back and foreclose on your property unless you could get it refinanced, but this hardly ever happens.

hermante

moneysaver45 wrote: »

Basicaly it ends up that the bank actually takes the lions share of the profit which is, well, ridiculous.

You want a 25% deposit, right? Let's buy a property together and I'll put up the remaining 75%. I'll take 75% of the rent from our tenant, thank you very much.

Werdnal

Many savvy tenants ask for proof you have consent to let or a BTL mortgage. No proof, no tenant.

Remember if you go for an interest only mortgage, the interest portion of the payment is deductable against any tax you have to pay on your rental income.

With so many different organisations having access to each others records these days, it is easier than ever for mortgage lenders to find out who is letting "illegally" - utility companies, electoral roll, council tax, DVLA, HMRC can all provide information to prove you are not living at the property.

There have been a few posts here recently from tenants who had received "for attention of the occupier" letters, which were from mortgage lenders trying to find out who is living at the address. With the ever increasing number of accidental LLs who are deciding to let as they cannot sell, it is only a matter to time before all lenders start trawling their customers to see who is doing so without CTL/BTL.

And if you are found out, how ever unlikely you seem to think that might be, it could seriously affect your ability to gain a mortgage or any sort of credit in the future.

Becoming a "dodgy" landlord from the start ... is that really how you want to run your letting business????

kingstreet

New tenants are conditioned by this site, others and the media, to demand evidence from their landlord that he has consent to let. This is because tenants are very badly affected by the repossession of a property where consent to let hasn't been granted. You could leave your tenants practically homeless if you fail to meet your legal obligations and are repossessed.

Some lenders now have systems to check the addresses of their customers across their group members and borrowers, for example with Halifax, are finding themselves being asked some pointed questions, if their Lloyds current account address is different.

I don't see why I should have to pay 40% of the value of the property up front compared to 25% if it was residential

I hope you won't mind me pointing out you're actually investing more in your asset, you're not "paying" out this difference. As a consequence, more of the income from the rent belongs to you.

You are entering into a business and should approach it with a business-like attitude. The mortgage interest can be offset against the rental income, together with other allowable expenses in reducing what is taxable in your hands.