Do 'accidental landlords' really need to get a buy to let mortgage?
For most people becoming a landlord is a conscious decision. Maybe they have money to invest or are looking to establish a business with a portfolio of properties. For these individuals, they fully intended to become private landlords and financed their properties accordingly.
They went to their bank or broker and arranged a buy to let mortgage. A buy to let mortgage is a business product designed for private landlords who intend to let their property for profit.
However, there is another sub-set of landlords who had absolutely no intention of letting out their property when they purchased it. These are accidental landlords and if you belong to this group you are one of many.
What is an accidental landlord?
Simply put an accidental landlord is someone who decides to let out their property having previously had no intention of doing so. They take this step because they are unable to sell their property but need to move out. This could be because of a new job, a divorce or perhaps the property isn't big enough for a growing family.
Whatever the reason the mortgage still needs to be paid. And if no buyer can be found letting the property out to a tenant is the ideal solution. A tenant’s rent will cover the mortgage payment. And the new landlord should even make a profit.
Installing a tenant propels the homeowner into the property business. They are now like any other landlord. With one big difference.
The mortgage they hold on the property.
Landlords who intentionally purchased a property to rent out will have a buy to let mortgage. An accidental landlord will have a normal residential mortgage. And that can become a problem.
Why accidental landlords must switch to a buy to let mortgage
Buy to let mortgages are different to residential mortgages. The deposits and interest rates are higher so they are more expensive than the residential mortgage the accidental landlord used to buy their property with. The bank may also charge a fee to switch the existing loan to a buy to let mortgage.
It is these added costs which persuaded some accidental landlords to keep quiet about their new status and carry on with their residential mortgage.
But letting a property in these circumstances breaks a condition of the loan and the bank could demand a full and immediate repayment. This may lead to the bank repossessing the property.
Contact your bank
If you are an accidental landlord with a residential mortgage or a homeowner considering letting out your property you need to contact your bank.
The bank will take care of switching your mortgage or they may allow you a 'consent to let.' What this means can vary between lenders but essentially the bank grants you a period of grace which allows you time, sometimes up to a year, to remain on your current terms while you rent out your home.
But you will have to switch to a buy to let mortgage at some point.
A point to bear in mind here is your private landlords insurance will be invalidated if you don't hold the correct mortgage. This, along with the threat of having to repay the mortgage in full, should persuade any accidental landlord that they must switch to a buy to let mortgage.
If you are an accident landlord find tenants easily by listing your property with online letting agents MakeUrMove.