Can I temporarily rent out a residential mortgage?

lshinnmorr

lookstraightahead said:

If you have a mortgage, you don't own your own home, the bank does (or at least they have a say in the matter). There's nothing wrong with having a mortgage, it's a good type of debt, but someone else is financing your home yes.

Can I ask a potentially stupid question - in your view why buy a house at all? Would it not be better to keep renting (lower cost than a mortgage in London) and save the money in an ISA or a pension instead? Saves you money and gives you so much more freedom and flexibility with none of the risks (both legal and financial) outlined by other commenters?

lshinnmorr

user1977 said:

lshinnmorr said:

Sidenote: it seems kind of crazy to me that owning your own home gives you less flexibility or freedom than renting, with so many more possible negative consequences like getting in trouble with the law as outlined in the replies.

It isn't a "owning your own home" thing, it's a "wanting to borrow a large sum of money" thing.

Sure - what I'm hearing from a lot of these comments is that it's probably not better to get a mortgage at all and to stay renting If you can't afford to buy outright. 

MaryNB

Slithery said:

If you have a joint tenancy with your housemates then it becomes more complicated. If you give notice then you are giving notice for the entire tenancy meaning your housemates will need to leave as well. If they fail to do so then the tenancy continues and you will still be liable for the full (maybe even double) rent until they all leave.

The simplest thing to do would be to move into a house-share or bedsit where you have a sole tenancy before starting to look at properties, that way when you do find something you don't have anyone else's timescales to think about.

That's a good point that I forgot.

OP, if you have 7 months left on the fixed term of your tenancy you all have to agree to end the tenancy at the end of the fixed term. The tenancy won't automatically end after 7 months, it's just the end of the fixed term. It's only when it becomes a rolling tenancy that you can end the tenancy without the agreement of the rest of your housemates. If they refuse to agree to end it at the end of the fixed term you won't be able to end it until it becomes rolling at the 8th month. 

MaryNB

lshinnmorr said:

user1977 said:

lshinnmorr said:

Sidenote: it seems kind of crazy to me that owning your own home gives you less flexibility or freedom than renting, with so many more possible negative consequences like getting in trouble with the law as outlined in the replies.

It isn't a "owning your own home" thing, it's a "wanting to borrow a large sum of money" thing.

Sure - what I'm hearing from a lot of these comments is that it's probably not better to get a mortgage at all and to stay renting If you can't afford to buy outright. 

Until your landlord gives you 2 month's notice (pre & post covid) because they want to sell the house. 

Also the vast majority of people plan to have their mortgage paid off by the time their retire and so they massively reduce their outgoings by the time they have to start relying on a pension. There was a poster here who's elderly in-laws were being given notice to leave because the landlord wanted to sell. Imagine being asked to leave your home when you're in your 80s!

Also, for most people a mortgage is much cheaper than renting. My mortgage is £624 a month. The house across the way went up for rent recently at £1,000 a month. 

Renting makes sense if you haven't got a sufficient deposit or aren't sure where you want to live long term. For the vast majority of people, buying is better if they can afford the deposit and mortgage repayments and plan on staying put for the foreseeable future. 

There is some flexibility with a mortgage but as you're aware you have to be living in the property for a while to get a consent to let. Renting out the house is running a business so the criteria is going to be different. A consent to let is just a temporary adjustment to the terms. The risks involved in granting a BTL mortgage are very different to a residential mortgage so the lending terms won't be the same. Also since you're asking a bank for a 6 figure sum, it's going to be on their terms. 

Grumpy_chap

lshinnmorr said:

Sure - what I'm hearing from a lot of these comments is that it's probably not better to get a mortgage at all and to stay renting If you can't afford to buy outright. 

For most people, if you ever want to own a home outright, then it can only be done with a mortgage.

lshinnmorr said:

lookstraightahead said:

If you have a mortgage, you don't own your own home, the bank does (or at least they have a say in the matter). There's nothing wrong with having a mortgage, it's a good type of debt, but someone else is financing your home yes.

Can I ask a potentially stupid question - in your view why buy a house at all? Would it not be better to keep renting (lower cost than a mortgage in London) and save the money in an ISA or a pension instead? Saves you money and gives you so much more freedom and flexibility with none of the risks (both legal and financial) outlined by other commenters?

If you buy a house, and irrespective of gain in capital value, after the mortgage term (25 - 30 - 35 years) you are free of that monthly payment and can live without the substantial monthly outlay.  

If you buy a house, you are forever tying your monthly outlay to the current level of property prices.  If you rent, the monthly outlay can increase at a rate over which you have no influence.  Historically, house prices and rental rates have increased far higher than most other costs.  If the future follows a similar pattern, your future monthly mortgage will be substantially lower than future rent.  "Past is no indicator of future" warning.

If you buy a house, you expect to reach retirement without needing to make the monthly outlay and aspire to have an asset.  Both financial steps that are helpful to give you more options in retirement.  If you rent, then you retire and still need a substantial monthly income just to meet the monthly rent.

If you buy a house, you can do what you want in it in terms of decoration and truly make it your own home.

If you buy a house you have your own space that is all yours.  At present, you are renting, but also have flat mates taking up some of the cost.

I know this is a difficult and stressful time for you, but you do seem to be picking up on those responses that have a negative tinge and not answering queries that give some positive suggestions.  I commented on how the 7-month overlap might reduce and also factors to check with the current rental agreement / flat mates to aid discussions.  

In addition to my previous queries, is the current arrangement with the flat mates that you rent and then the flat mates are your lodgers?  Or, do you each rent separately from the landlord (HMO)?

lshinnmorr

MaryNB said:

lshinnmorr said:

user1977 said:

lshinnmorr said:

Sidenote: it seems kind of crazy to me that owning your own home gives you less flexibility or freedom than renting, with so many more possible negative consequences like getting in trouble with the law as outlined in the replies.

It isn't a "owning your own home" thing, it's a "wanting to borrow a large sum of money" thing.

Sure - what I'm hearing from a lot of these comments is that it's probably not better to get a mortgage at all and to stay renting If you can't afford to buy outright. 

Until your landlord gives you 2 month's notice (pre & post covid) because they want to sell the house. 

Also the vast majority of people plan to have their mortgage paid off by the time their retire and so they massively reduce their outgoings by the time they have to start relying on a pension. There was a poster here who's elderly in-laws were being given notice to leave because the landlord wanted to sell. Imagine being asked to leave your home when you're in your 80s!

Also, for most people a mortgage is much cheaper than renting. My mortgage is £624 a month. The house across the way went up for rent recently at £1,000 a month. 

Renting makes sense if you haven't got a sufficient deposit or aren't sure where you want to live long term. For the vast majority of people, buying is better if they can afford the deposit and mortgage repayments and plan on staying put for the foreseeable future. 

There is some flexibility with a mortgage but as you're aware you have to be living in the property for a while to get a consent to let. Renting out the house is running a business so the criteria is going to be different. A consent to let is just a temporary adjustment to the terms. The risks involved in granting a BTL mortgage are very different to a residential mortgage so the lending terms won't be the same. Also since you're asking a bank for a 6 figure sum, it's going to be on their terms. 

Kind of unrelated to the original post now, do you think in that case if my mortgage is more than my rent that it's a bad idea?
Current rent: £737 per month

House price (very cheap for the area) : £330,000

Mortgage deposit: £40,000
Mortgage monthly repayments: £1300 per month (interest each month actually more than my current rent). 
It seems from all the comments here that mortgages hold many more risks and also, as one commenter said, you don't own the house anyway as the bank does. So is it better to just rent and save/invest the money?

MaryNB

lshinnmorr said:

MaryNB said:

lshinnmorr said:

user1977 said:

lshinnmorr said:

Sidenote: it seems kind of crazy to me that owning your own home gives you less flexibility or freedom than renting, with so many more possible negative consequences like getting in trouble with the law as outlined in the replies.

It isn't a "owning your own home" thing, it's a "wanting to borrow a large sum of money" thing.

Sure - what I'm hearing from a lot of these comments is that it's probably not better to get a mortgage at all and to stay renting If you can't afford to buy outright. 

Until your landlord gives you 2 month's notice (pre & post covid) because they want to sell the house. 

Also the vast majority of people plan to have their mortgage paid off by the time their retire and so they massively reduce their outgoings by the time they have to start relying on a pension. There was a poster here who's elderly in-laws were being given notice to leave because the landlord wanted to sell. Imagine being asked to leave your home when you're in your 80s!

Also, for most people a mortgage is much cheaper than renting. My mortgage is £624 a month. The house across the way went up for rent recently at £1,000 a month. 

Renting makes sense if you haven't got a sufficient deposit or aren't sure where you want to live long term. For the vast majority of people, buying is better if they can afford the deposit and mortgage repayments and plan on staying put for the foreseeable future. 

There is some flexibility with a mortgage but as you're aware you have to be living in the property for a while to get a consent to let. Renting out the house is running a business so the criteria is going to be different. A consent to let is just a temporary adjustment to the terms. The risks involved in granting a BTL mortgage are very different to a residential mortgage so the lending terms won't be the same. Also since you're asking a bank for a 6 figure sum, it's going to be on their terms. 

Kind of unrelated to the original post now, do you think in that case if my mortgage is more than my rent that it's a bad idea?
Current rent: £737 per month

House price (very cheap for the area) : £330,000

Mortgage deposit: £40,000
Mortgage monthly repayments: £1300 per month (interest each month actually more than my current rent). 
It seems from all the comments here that mortgages hold many more risks and also, as one commenter said, you don't own the house anyway as the bank does. So is it better to just rent and save/invest the money?

It's not like for like. You're paying a mortgage on a house to yourself vs paying rent for a room in a house share. To pay rent on the same type of property you're buying would more than likely cost you much more than £1,300.

The general rule of thumb is to keep your rent/mortgage to approx 30% of your gross monthly income. Obviously that could vary massively depending on your other outgoings. Do a full budget and see what you are comfortable paying. When doing affordability checks your lender will check if you can afford the mortgage if the interest rates are much higher at the end of your initial fixed term. Halifax checked my application against a 9% interest rate which was the highest in the last 20 years. It would be a struggle but a lodger would easily help me pay some of it off and I expect to have a substantial pay rise before the 5 year fixed rate ends. I realise since you're buying a one bed, getting a lodger isn't really an option. You need to figure out what you're comfortable paying.

elsien

Presumably there was a reason you wanted to stop renting in a shared house and buy your own place? 

It seems a bit of a strong reaction to go from putting an offer in on a house, then blowing out the whole idea for a few years in the space of 3 pages on a thread.
Your rent is cheaper because you are living in a shared space. If you (and your joint tenants) want to carry on doing that, that’s fine. But also think about the cost of renting your own place when you don’t want to share any more, or having to find new people to live with when your current  joint tenants decide they want to move on.
Its about more than just the finances. 

Grumpy_chap

lshinnmorr said:

Kind of unrelated to the original post now, do you think in that case if my mortgage is more than my rent that it's a bad idea?
Current rent: £737 per month

House price (very cheap for the area) : £330,000

Mortgage deposit: £40,000
Mortgage monthly repayments: £1300 per month (interest each month actually more than my current rent). 
It seems from all the comments here that mortgages hold many more risks and also, as one commenter said, you don't own the house anyway as the bank does. So is it better to just rent and save/invest the money?

Are your comparisons like-for-like?
What property do you get for the £737 rent?
Is that before or after your flat mates have made a contribution?
What property are you getting for the £330k?

If your mortgage is repayment over 25 years, then the interest rate is around 2.5% based on borrowing £290k (88% LTV).  After 25 years you no longer need to pay the mortgage.  What rent will you be paying then?

If you can get the deposit to £50k so that LTV is <85% then slightly more favourable interest rates may be available.  Don't be put off if you cannot achieve that now as in a short period of time, the equity percent will have increased, so you can shop around then to obtain more favourable interest rates and bring the monthly payment down.

Regarding "you don't own the house, the bank does" that is not strictly true.  You will own the house, but the bank retains an interest in the house until such time as the mortgage finance is fully paid off.  While the bank has an interest in a substantial chuck of the equity, the bank can restrict some actions. 

Your proposed action (to rent straight away for a short period) is a particular "red flag" for a lender because the interest rate for a BTL is higher than for owner-occupancy plus the BTL deposit required is usually 25% or more.  The lender would consider that it was always your plan to let and not to live there (even if you know that is incorrect, the lender cannot know your mind).

lshinnmorr

Grumpy_chap said:

lshinnmorr said:

Kind of unrelated to the original post now, do you think in that case if my mortgage is more than my rent that it's a bad idea?
Current rent: £737 per month

House price (very cheap for the area) : £330,000

Mortgage deposit: £40,000
Mortgage monthly repayments: £1300 per month (interest each month actually more than my current rent). 
It seems from all the comments here that mortgages hold many more risks and also, as one commenter said, you don't own the house anyway as the bank does. So is it better to just rent and save/invest the money?

Are your comparisons like-for-like?
What property do you get for the £737 rent?
Is that before or after your flat mates have made a contribution?
What property are you getting for the £330k?

If your mortgage is repayment over 25 years, then the interest rate is around 2.5% based on borrowing £290k (88% LTV).  After 25 years you no longer need to pay the mortgage.  What rent will you be paying then?

If you can get the deposit to £50k so that LTV is <85% then slightly more favourable interest rates may be available.  Don't be put off if you cannot achieve that now as in a short period of time, the equity percent will have increased, so you can shop around then to obtain more favourable interest rates and bring the monthly payment down.

Regarding "you don't own the house, the bank does" that is not strictly true.  You will own the house, but the bank retains an interest in the house until such time as the mortgage finance is fully paid off.  While the bank has an interest in a substantial chuck of the equity, the bank can restrict some actions. 

Your proposed action (to rent straight away for a short period) is a particular "red flag" for a lender because the interest rate for a BTL is higher than for owner-occupancy plus the BTL deposit required is usually 25% or more.  The lender would consider that it was always your plan to let and not to live there (even if you know that is incorrect, the lender cannot know your mind).

Really helpful - thank you. 
All of the initial comments to my post were outlining how terrible an idea it would be to buy and how I would be doing something illegal / potentially get in trouble with the police for being in my (fairly normal-seeming) situation because I would have a mortgage, which made me think that possibly getting a mortgage is not a good idea after all. This makes it much clearer.