Consent to Let or A Buy-To-Let Mortgage?

Do you need a residential mortgage with Consent To Let or a Buy-To-Let Mortgage? Someone asked us recently if he could simply let his property and keep his current residential mortgage. Doing this without consulting his lender could cause him to break his current mortgage agreement.

His residential mortgage will have been agreed with his lender based on the fact that he was going to live in the property. If that is no longer the case, his lender will want to reassess the risks associated with his new circumstances. They will also want to reassure themselves that his change in circumstances is genuine. His lender will not be pleased if he always intended to let the property out and applied for a residential mortgage in order to gain favourable rates.

Breaking his mortgage agreement in this way could mean he is faced with a financial penalty. This could be as much as 1 per cent above any new consent to let rate. And he could also receive a demand for back payments to cover the extra interest owed.

What Is The Difference Between A Residential Mortgage With Consent To Let Or A Buy-To-Let Mortgage?

Some mortgage lenders use the term ‘consent to lease’ and others prefer ‘consent to let’. There is no difference in meaning between the two.

Consent to let tends to be short-term or for a fixed period. So if this person was traveling or working in another part of the country for a year the lender is likely to agree to consent to let. The lender may charge a one-off fee for this or even increase the interest rate during this period.

If however, if this person is planning for his move to be a long-term/permanent arrangement he is likely to need a specialist buy-to-let mortgage. There are often higher arrangement fees for this type of mortgage. And to secure a buy-to-let mortgage you are likely to need a deposit or equity of at least 25 per cent of the property. The rent would usually need to cover 125 per cent of the mortgage repayments. So if the mortgage payments are £400 a month rent would need to be at least £500.

Higher fees and interest are usually charged for consent to let and specialist buy-to-let mortgages because they are associated with higher risks. They take into account things like periods when the property is empty and tenants falling into arrears.

Tax For Landlords

This potential landlord should also take into account changes to his annual tax return. This year, he could claim tax relief of 50 per cent. From April 2019, this will reduce to 25 per cent. Then in April 2020, he will not be able to claim any tax relief. Instead, he will be able to claim a tax credit worth 20 per cent of his mortgage interest.

For other things to think about for potential landlords and first time property investors see our blog post 6 Essentials For The First Time Property Investor. You can also contact our team member Keith Newby for a free 1-2-1 about getting started in property investment.