Some people that have a standard mortgage on property are renting out the accommodation privately without informing the mortgage lender. This is done to avoid the extra costs of being an official landlord. However, lenders are looking at various ways to stop this practice as it breaches the terms of their mortgages, as discussed in a June 2017 Telegraph article.
A 3% stamp duty is charged on buy-to-let property, and commercial mortgages on buy-to-let property are at a higher interest rate than a standard residential mortgage. There are regulations and restrictions that buy-to-let landlords need to comply with. An increasing number of people try to avoid these charges and regulations by privately renting out their home.
At the application stage, some lenders want assurances that the property will not be rented out. Lenders check websites to see which homes are being advertised to rent.
Credit checks highlight existing mortgages, but they do not specify if the mortgage is for buy-to-let. Nonetheless, lenders can investigate if they are suspicious.
Many lenders will allow mortgage holders to rent out their houses for short-term lets, but may charge a fee or higher interest rate.
People wanting to purchase property to rent are advised to apply for a buy-to-let commercial mortgage and make sure that they abide by all the landlord regulations.
If someone has a buy-to-let mortgage and then decides to live in the house rather than make it available to rent, they may be able to negotiate with the lender for a lower mortgage interest rate.