Renting house out.

rdty21

Hi.
Just wondering if anybody has had experience renting out a mortgaged house? Me and my partner are thinking of moving in together. We both have our own houses so we would be renting one of them out and moving into the other. The mortgage company have said that if we rent the house out they may change the type of mortgage to a buy to let and charge us a fee. There is only one year left until its due to be renewed, is it worth telling them? Also can they change the product just to suit them better and make them more money?

Any help or advice welcome.
Thanks rdty21.

BrixMorta

Yes you must tell them, otherwise if they find out the consequences could be significant. Usually the interest rate increases but some lenders may keep rate the same and make a charge instead. You will need to seek advice from a financial advisor. There are some on this forum who could help.

Badger_Lady

It's very standard for your mortgage to be increased by 1% if you are letting it out, although it will vary with different lenders. You do need to change type though - don't defraud your mortgage company!

They will probably pick up on it anyway when you change address (not good practice to have mortgage statements addressed to your tenant!). When I moved out of my flat, I was leaving it empty, but the mortgage company still sent my a quote / agreement for Letting out automatically when I changed address.

Are you up to speed with all the other costs, e.g. landlord's insurance, income tax (and capital gains tax, of course), any empty periods between tenants... are you letting through an Agent (in which case consider their expenses) or will you do it privately (need to consider legal expenses, marketing costs, referencing agencies etc)?

silvercar

There is a difference between fraudulently applying for a residential mortgage with the intention of letting the property. This is obtaining money by deception and a criminal offence.

Letting out a property that was your residential home is "merely" a breach of the lenders terms and conditions and a civil matter. I've never heard of a lender taking a mortgagee, with no arrears, to court for breach of contract.

If the lender becomes obstructive and you decide to let anyway, make sure you have the correct insurance. You don't want to have a claim and then find you are not covered.

rdty21

We were thinking of renting through northwoods platinum scheme. We understand the fees and that we wont get as much in our bank account as with self managed. With regards to tax, the letting agent told us that because the rent we would recieve is £5 short of the mortgage payment every month, we would not be making a profit and therfore would not have to pay tax. Not sure about cgt. How does that work?

benb76

You have to pay tax on any rent you recieve which is above the interest you pay on your mortgage, i.e. you take away the capital repayment amount from your mortgage payment. So unless you've got an interest only mortgage, your estate agent has misinformed you.

Don't forget that you can also offset any insurance premiums and essential maintenance etc. against your taxable profit.

rdty21

The mortgage is interest only until next august so we would not have to pay any interest at all, right?

silvercar

correct, and with only a fiver between the two, you will be making a loss when you have considered other costs. So no income tax to pay at the moment.

CGT only applies when you sell the property. It is based on the difference between the selling and buying costs but there are allowances for the time it was your home and the letting relief, taper relief etc.

rdty21

Has anybody asked the halifax for permission to let and what did they say?

dolce_vita

In line with most lenders they will want the rent to cover the mortgage and will insist on there being a proper contract in place (which obviously you would do anyway). They may want a copy of the rental agreement as proof.

rdty21

The rent we would recieve would be £5 short but that would be met by ourselves anyway. Also the scheme offers gauranteed income if there is a tenant or not. Surely this would be better for the lender.