Reply to: BTL mortgage, is it necessary?

[p-and-o]

[/B]

Most lenders will either do nothing........increase your mortgage rate slightly........or sting you. You sure you've covered all bases? and you accusse me of talking rubbish! You don't need to worry about me being your IFA - I like clients who can make a decision.

Hello All
I have found all this information useful but does anyone knows what would the actual penalties for "breaching your contract" - in regards to the fact that the lender was not notified the property was let - and how/in what way can you lender "sting" you? Well apart from asking for all their money back - but even then surely they will give you some reasonable time to find another mortgage or perhaps move back in - and then it becomes your residence again.

Has anyone here experienced this first hand?

Thanks

[expat]

When we did this a couple of years back, we informed the lender. They allowed us to stay on a "normal" mortgage on the proviso that we used a fully managed service from a letting agent.

Useful idea, ta.

[NickNick]

When we did this a couple of years back, we informed the lender. They allowed us to stay on a "normal" mortgage on the proviso that we used a fully managed service from a letting agent.

[Little'Old Me]

Existing mortgage

If you have an existing mortgage, all you need to do is notify your lender you intend to rent the property. They will normally charge you an admin fee of £25.00 to say "yes"... When it comes to insurance, Building Insurance just needs to be notified and if you are renting furnished, you will need to get landlord insurance to cover your property. I've never seen any lender increasing the interest rate.

However if you want to remortgage, they will normally steer you to a BTL mortgage.

Even if rent a room in your own home, where you are still living, you will need to notify your insurance company, or you may find your insurance invalidated!

[ASB]

if you have an insurance policy on your current property and change it to a BTL Insurance policy then the original policy provider will notify the lender, so thats how the lender gets to find out - they have a legal obligation to do that.

As it happens my lender hasn't got a registered interest - but I think that is unusual. Anyway most residential mortgages (won't say all) have a clause in the conditions prohibiting let unless then lender knows and gives permission. If one doesn't get approval then it is often a breach of conditions and as you point out this can stack up a bunch of interesting problems. Not least being the lender can foreclose. Also if the lease was not drafted very carefully in this situation the tenants can probably sue (whether they would win or not is a different matter of course).

In terms of the insurance, irresepctive of whether the lender is notified, it pays to be very careful. I changed a building policy to a standard policy - which did allow letting (most don't of course). Next year with the renewal documents I discovered they had pulled the clause covering let property.

So, you are in principle quite right. You're not saying it will cause problems - it's actually rare that it does - but it certainly might and they can be difficult to resolve.

[glashIFA@Paramount]

No. not that lender, cos that lender is in your imagination.
Who exactly is it that notifies a 'lender' when a policy is cancelled? You're talking rubbish. But thanks for letting me know I should never use you as an IFA.

Look, don't want to get into a fight or anything over this. You no doubt deal with your mortgage and i deal with dozens of mortgages. Expat asked if he needed to switch to a BTL mortgage if he decided to move and rent his current poroperty. i merely offered a bit of information - not advice, thats different - and said if you don't convert to a BTL mortgage you run the risk of invalidating your insurance policies in the event of a claim, thats all. didn't advise to change, just offered some info. if you have an insurance policy on your current property and change it to a BTL Insurance policy then the original policy provider will notify the lender, so thats how the lender gets to find out - they have a legal obligation to do that. if your original lender is happy for that to happen they will ask for a copy of the new policy document and ask to have their interest registerd on it. If your current lender is not in the BTL market and they get notified that the original policy is cancelled (see above) then they will start to ask questions. You might think this is rubbish, and thats your perogative, but I'm afriad its not. You start renting out a property that has a normal residential mortgage secured on it and you MIGHT create a few problems for yourself. Thats all i said. i know there are plenty of people that do that and i know there are plenty of people that did that and got "found out".

[slackbloke]

[/B]

Most lenders will either do nothing........increase your mortgage rate slightly........or sting you. You sure you've covered all bases? and you accusse me of talking rubbish! You don't need to worry about me being your IFA - I like clients who can make a decision.

I didn't say nothing or increase rate OR sting you. They will do either nothing or increase the interest rate. They may sting you on the interest rate. I wasn't making or not making a decision, I was stating what mortgage lenders do.

[glashIFA@Paramount]

You don't need to change to a BTL lender. Normally the terms of a personal mortgage dictate you must notify the lender if you rent the house out. The reason for this is it effectively becomes a commercial mortgage which are normally at slightly higher interest rates. Most lenders will either do nothing or increase your mortgage rate slightly if you notify them. However, given the current economic climate, they might sting you.

Most lenders will either do nothing........increase your mortgage rate slightly........or sting you. You sure you've covered all bases? and you accusse me of talking rubbish! You don't need to worry about me being your IFA - I like clients who can make a decision.

[slackbloke]

Nothing to do with the lender? that would be the lender that has a registered interest in your current policy? - the policy that you cancel when you replace it with specialist rental property insurance? - the lender thats then notified that the policy has been cancelled and will write to you insisting that they're registered as an interested party on the new policy? That lender?

No. not that lender, cos that lender is in your imagination.
Who exactly is it that notifies a 'lender' when a policy is cancelled? You're talking rubbish. But thanks for letting me know I should never use you as an IFA.

[glashIFA@Paramount]

It's got nothing to do with the lender. You can just get specialist rental property insurance.

Nothing to do with the lender? that would be the lender that has a registered interest in your current policy? - the policy that you cancel when you replace it with specialist rental property insurance? - the lender thats then notified that the policy has been cancelled and will write to you insisting that they're registered as an interested party on the new policy? That lender?

[glashIFA@Paramount]

Surely that means notifying the insurer, not the lender?

Not all insurers cover BTLs. You can't just tell your current insurer that the property is now rented and expect them to take it on.

[slackbloke]

It's the building and contents insurance that are the problem. If you don't notify the lender that the property is now rented then it will invalidate your insurance in the event of a claim.

It's got nothing to do with the lender. You can just get specialist rental property insurance.

[expat]

It's the building and contents insurance that are the problem. If you don't notify the lender that the property is now rented then it will invalidate your insurance in the event of a claim.

Surely that means notifying the insurer, not the lender?

[glashIFA@Paramount]

A friend of mine is letting out his old house on a residential mortgage, and has simply kept quiet about it to his provider. Not something I would want to do.

It's the building and contents insurance that are the problem. If you don't notify the lender that the property is now rented then it will invalidate your insurance in the event of a claim.

[expat]

You don't need to change to a BTL lender. Normally the terms of a personal mortgage dictate you must notify the lender if you rent the house out. The reason for this is it effectively becomes a commercial mortgage which are normally at slightly higher interest rates. Most lenders will either do nothing or increase your mortgage rate slightly if you notify them. However, given the current economic climate, they might sting you.

That would be a concern. My point is that (in my case) the reality behind it would not be converting my home into a business, which I can see would work on different calculations; but rather, a house that I could keep on without renting, but have no immediate plans to live in, would be rented out in the meantime: so in effect for the lender nothing would change.

But they might sting me anyway, yes I can imagine that.