[Closed] Renting out a property with a residential mortgage?

Legally speaking or literally can you do it? Of course you can, there are loads of people out there doing exactly that. Mortgage company wouldn't be too happy but unlikely to find out if you keep up the repayments

What about inland revenue

What about inland revenue

Check T&Cs of the mortgage.

Freehold or leasehold (e.g. flat)? If the latter, check the lease for any restrictions

Revenue, you'll need to be declaring rental income.

The mortgage company wouldn't be happy but then I'd guess what they can actually do is limited... Technically they might be able to do a lot but practically the last thing they need is you defaulting.

IR on the other hand can bugger your life up completely ... don't care whether you can or can't pay the mortgage etc. so better not to mess

I guess the real question might be would the mortgage company find out if you declared revenue from rental ???

Can you rent out a property bought with a residential mortgage without converting to a buy to let? Even if the "tenancy" is informal, maybe even cash in hand?
Not me btw

Yes, I've been doing it with one property for 20 years. I bought it way before BTL came in to vogue so was never an option. Changed to a different mortgage in 2004 and told bank mortgage advisor but she wasn't fussed really.

Although this would need to be the only property the buyer owns as any additional property purchase would automatically be on a btl unless there were extenuating circumstances such as going through a divorce.

And yes to tel HMRC, because if you don't it's likey you'll get caught at some point.

Cash in hand is tax free isn't it? 8)

Well yes if it's cash in hand then highly unlikely anyone would know, unless you fall out with the tenant and they tell HMRC.

get the correct house insurance, i.e. your home contents policy is not valid if a tenant burns your house down. Buy2let insurance is not noticeably more expensive in my experience

I once rented a room in a house where the landlord had a residential mortgage. Originally it was his residence, then he moved out but his daughter stayed. The rest of the rooms were rented out. Then the mortgage company found out (can't remember how*) and weren't happy. They switched him to a buy to let mortgage and his repayments went up. This meant the renting out wasn't viable so he had to put the house on the market and we had to move out.

*Might have been through a credit check, i.e. he put his new residence as where he was living

You probably could, but why not just let the mortgage provider know? Probably because it's a tax dodge.

Fine if they don't get caught...

Edit: we got into a situation where we had to rent our house out. We just told the mortgage company and they were cool with it, no changes to payments etc.

They switched him to a buy to let mortgage and his repayments went up.

I'm not bothered if the bank found out, mortgage will be paid off very soon anyway 🙂

You probably could, but why not just let the mortgage provider know? Probably because it's a tax dodge.

Because BTL mortgages are generally more expensive. Bank knowing or not has no bearing on HMRC knowing.

I do. Natwest offer a 'permission to let' that rolls over every year. the only real restrictions surround additional lending and you can still swap products to get the best rates. I also inform HMRC, as I like to sleep at night.

You don't need a buy-to-let, it is possible to rent out your house using your existing mortgage but you need a consent-to-let letter.

My provider (Natwest) said it was easy to get and cost about £100.

My worry wouldnt be the mortgage company.

But I'd be very weary of the tenant.. cash? really??

Tenant pays you (the other person) a deposit and first months rent ... then never pays again ... no record of payment, no tenancy agreement, no chance of getting your house back easily ??

Good luck

Tenant pays you (the other person) a deposit and first months rent ... then never pays again ... no record of payment, no tenancy agreement, no chance of getting your house back easily ??

Go into property when they're out, change locks. As you say no tenancy agreement so works both ways. I presume this would be some arrangement with a friend though.

maybe ask your mortgage provider? we paid i think about £150 to Santander to get permission to let it out without changing our mortgage to buy to let.

also you only have to declare your profits for tax purposes if they are greater than your mortgage, agency fees and other costs.

Thanks all

What about if a fixed term was coming to an end and a new deal was to be sorted?

iirc, the 1st few K of a lodger's rent is tax-free, but check with HMRC online for confirmation. I assume you are living in the property.

Yep, I let out a property with a consent to let agreement with my mortgage provider, one of the scottish ones I think.

As said above it costs about £100. We also inform HMRC and pay the correct tax on it.

What about if a fixed term was coming to an end and a new deal was to be sorted?

if you don't do a deal it just switches to whatever the provider has specified in your mortgage agreement.

the 1st few K of a lodger's rent is tax-free

Well that depends how much you earn, but none of my rental income is 'tax free'. There are tax deductible items which decreases the amount I pay tax on if that's what you mean. I guess you must be referring to rent a room scheme, rather than renting a property out in total.

You can definitely do it.
The flat I used to live in was but we only found out when it was repossessed (not sure if the B2L issue was contributory or if our rent was propping another investment up somewhere rather than covering the mortgage).

Thankfully we were moving out anyway.

"There are tax deductible items which decreases the amount I pay tax on if that's what you mean."

The rules changed this year. HMRC now takes a % of the rent as tax and "deductables" can no longer be offset against tax. The % is set to increase every year until 2020 at which point c20% ish of rent will go straight to HMRC even if that means the landlord makes a loss when expenses are taken into account.

The rules changed this year. HMRC now takes a % of the rent as tax and "deductables" can no longer be offset against tax

Yes but I always applied the 10% wear and tear rate anyway.

I also think you misunderstand what the changes are.

If by 'deductibles' you mean 'interest on the mortgage' then yeah that's changed, and you can't claim it as an expense, but other stuff like wear and tear, repairs/replacing stuff and agents fees etc can still be used to reduce tax burden

If by 'deductibles' you mean 'interest on the mortgage' then yeah that's changed, and you can't claim it as an expense,

Yes, you can. It's being reduced over four years.

Landlords will be able to obtain relief as follows:

in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

and you can't claim it as an expense

You can up to 2020

As for the OP's question.

There is nothing illegal about using residential mortgage for BTL, nor is it a tax dodge. However, it may be a breach of the loan terms and possible the mortgage company could sue (civil courts) for the difference in interest between residential and BTL mortgage rates; however that is pretty unlikely.

Yes but you may be paying more than you need to.

Consider switching to an interest only mortgage for the property you're letting. Presumably you'lll sell the property at a (much) later stage to pay off the balance , leaving you with s nice profit, which may or may not be subject to Capital Gains Tax (depending how long you lived there yourself)

"[i]You can up to 2020[/i]"

And beyond, but you will only get relief at basic rate, as per footflaps' post.

Yes, but couldn't be bothered typing any more 🙂

A friend had to do this when made redundant.

Mortgage company were fine as a temporary measure, but wanted to convert to BTL after 2 years, which from memory meant around 60-70% LTV was necessary. They were first time buyers so it meant raising a LOT of cash.

As for the OP's question.

There is nothing illegal about using residential mortgage for BTL, nor is it a tax dodge. However, it may be a breach of the loan terms and possible the mortgage company could sue (civil courts) for the difference in interest between residential and BTL mortgage rates; however that is pretty unlikely.

'Consent to let' agreement is all you need.

'Consent to let' agreement is all you need.

They may not agree to this and insist you change to a BTL mortgage.

Our residential mortgage with Nationwide attracted a 1% surcharge in addition to the normal rate to get their 'consent to let'. It still worked out better than setting up a BTL mortgage.