Can I rent my house out on a residential mortgage?

Can I rent my house out on a residential mortgage?

In short, yes, you can rent out your home with a normal mortgage, but you must understand the regulations and possible problems that come with taking a tenant before deciding to do so.

We’ll discuss how working with landlords differs from self-letting, potential taxation challenges you may face, government benefits that could be taken into account, and any potential implications for insurance premiums when doing so.

What is the difference between a landlord and someone who is self-letting?

• A landlord is someone who has bought a property with the intention of renting it out long-term through a buy-to-let mortgage.

• A self-letter, on the other hand, is an individual renting out their own home while they still live in it or using it as their primary residence.

This could be done through Airbnb or similar platforms for short-term rentals, or it could be done through a long-term lease agreement with your mortgage lender, known as 'consent-to-let' (more on this below).

Do I have to tell my mortgage lender if I want to rent out my property?

Yes. You will need to inform your mortgage lender if you plan on renting out your residential property as it can change the terms of your original mortgage agreement. They may require you to switch to a buy-to-let mortgage in order for them to legally allow you to rent the property, for instance.

Failing to tell your mortgage lender of your intention to take on a tenant without a buy-to-let mortgage, irrespective of whether you're still living there, can lead to some serious consequences.

This is because:

• renting out to a tenant may change how lenders view the risk associated with lending money

• your lender may also require details about who is going to be living in the property, how long they will be there, and how much rent you are charging

These details may also affect your ability to claim any capital losses associated with letting expenses, as well as any tax implications which come from having a landlord-tenant arrangement.

Do I need to change my mortgage to rent out my home?

Maybe. This depends on how long you intend to rent out the property. Some lenders may allow you to stay on your residential mortgage and rent it temporarily through a process called 'consent-to-let'.

However, If you’re considering renting out your property on a longer-term basis while holding onto its residential mortgage, then this will require you to remortgage the property onto a buy-to-let mortgage product.

What is consent-to-let and how does it work?

Consent-to-let is the process of obtaining permission from your mortgage lender to rent out your property while holding onto your residential mortgage.

The consent-to-let process will typically involve providing the lender with evidence such as tenancy agreements, proof of rental income, and sometimes even details about the tenant’s credit history.

For further information, we recommend you speak to your mortgage adviser.

What properties can a person choose to rent out to tenants with consent-to-let?

A person can choose to rent out any property they own, as long as the mortgage lender approves the arrangement.

It’s important to note, however, that when renting out a property while still holding onto its residential mortgage agreement there are potential implications for insurance premiums that must be taken into account.

Insurance policies may need to be updated or completely replaced in order to provide cover for the tenant living in the property and any possessions they bring with them. It’s therefore essential to seek advice from a qualified mortgage insurance specialist before renting through consent-to-let.

There may also be other legal considerations when it comes to taking on tenants and ensuring that their rights are upheld. It may be beneficial to seek the advice of a qualified legal professional before taking on tenants.

What are the tax implications of renting out my house on a residential mortgage?

Although renting out your house while you still live in it is not considered to be running a business, there can still be taxation issues associated with the rental income depending on how much money you make from it.

The tax implications of consent-to-let vary depending on the type of property being rented out and the individual’s circumstances. Generally, when renting out a residential property in the UK, any income received must be declared and is subject to taxation.

Income tax is usually payable at the normal rate, although there are some exceptions. For example, those who rent out furnished accommodation (a bedroom in your home, for example) can be eligible for a further deduction of 10% of their rental income when calculating their liability for income tax. This is known as "rent-a-room relief" and applies if the income received is less than £7,500 per year.

Again, it’s important to seek advice from a qualified tax specialist before taking on tenants and renting out a property that still holds its residential mortgage.

What are the insurance requirements for renting out your home on a residential mortgage?

You should always check with your existing home insurance provider to see if you can extend the coverage provided on your existing policy. If not, then you may need a separate landlord’s insurance policy to provide adequate cover for your tenant and their possessions.

Landlord’s insurance policies typically provide cover for:

• loss of rent

• damage to the property caused by tenants

• legal expenses incurred as a result of disputes between landlords and tenants

• third-party liability in case someone is injured on the property. 

Tenant screening top tips

Tenant screening is an essential part of any letting process. You should ensure that your tenants are suitable and able to pay the rent on time, in order to minimise the risks associated with rental property ownership. Here are some top tips for tenant screening.

First and foremost, you should thoroughly research prospective tenants before agreeing to a rental agreement. This can include:

• checking their credit history and employment records

• verifying references from previous landlords or employers

• asking for proof of income

You should also consider carrying out a criminal background check on all tenants over 18 in order to protect yourself against potential damage to the property or any illegal activity conducted onsite.

Finally, it’s important to ensure that tenants understand their rights and responsibilities before signing a rental agreement. This includes payment of rent and utilities, any rules for subletting or sharing the property with other tenants, as well as any restrictions on pets or smoking inside the property. This is where tenant contracts come into effect.

How do I set my rent?

Setting the right rent for your property is essential in order to ensure that you receive a fair return on your investment while still attracting suitable tenants. When determining your rent, it is important to consider market rents in the local area as well as what other landlords are charging.

It can be helpful to research rental prices online through websites such as Zoopla or Rightmove, and to speak with local estate agents for advice.

Once you’ve determined a suitable figure, you must advertise this alongside your property listing in order to attract the right tenants.

Property management advice

You must have a clear agreement in place with your tenants. This should include all necessary information such as the rent amount, payment terms and conditions as well as any restrictions on pets or smoking inside the home. It’s also important to ensure that this agreement is legally binding in order to protect both parties.

You should also keep an up-to-date inventory of the property and its contents so that any potential disputes can be easily resolved. This should include photographs or videos documenting the condition of each room, as well as a record of any existing furniture or appliances inside the home.

Remember that rents can be increased over time as long as your tenants agree and the terms are stated within the rental agreement. This is often necessary due to inflation or changes in local market conditions, so you must consider this when setting your initial rent. However, if you're only letting out your home on a temporary basis with consent-to-let, this may be less of an issue.

What next?

If you want to dip your toes into the world of the landlord, then acquiring consent-to-let on your residential mortgage could be worth exploring. This allows you to see what it could be like on a temporary basis. Of course, you must tell your mortgage lender before you do anything. 

So, your first step is to get in touch with your mortgage broker.