Q&A; Do I need a buy-to-let mortgage to take a lodger or sublet?
Author: Andy Bedford » Publish Date: 7 July 2023
Question; I want to buy a property and let a room or several rooms out; is this a buy-to-let?
There are two aspects to this question; legally, any property where you, or your direct family members, occupy more than 40% of the habitable space is considered a regulated residential mortgage.
So, a buy-to-let mortgage usually precludes you or a family member from occupying the home. Except for a limited number of “regulated buy-to-let” products, which only have niche uses.
These buy-to-let products are rarely preferable as most residential lenders allow you to take a lodger or two, subject to certain limitations, and are generally less expensive.
It is vital to check with your lender if they allow lodgers, as some won’t. But most require that lodgers occupy the home as a friend and don’t have a self-contained unit like a granny annexe, although a small lock on a bedroom door is unlikely to be a big problem.
Lenders often request that no formal tenancy agreement is in place and that the lodger signs a “consent to mortgage form”. These are important to limit the lodger gaining complex legal rights to remain in the property, even in a non-payment dispute.
Where this gets confusing; is reading your mortgage offer conditions which usually state that subletting is prohibited!
This likely refers to precisely that point; making a formal tenancy agreement with a lodger can grant them rights that are prejudicial to you as the homeowner: and the mortgage lender if they ever had to repossess.
If you want to let a self-contained unit like a granny annexe, particularly with a formal tenancy; then it is hard to do this whilst remaining on the right side of the law with your mortgage lender; as most buy-to-let deals won’t allow you to occupy any part of the home, and most residential lenders won’t let you sublet any part.
If you want to purchase or part-occupy a multi-unit block (a block with several self-contained flats) then this is possible, but there are very few lenders entertaining these transactions; you will benefit from using a mortgage adviser as most of those lenders will only offer products through qualified brokers.
These are the legal aspects relating to the mortgage conditions; the second part of the question relates to health & safety, local planning bylaws, protections for tenants and insurance.
At any point where you take a lodger, it will be your responsibility to ensure that you comply with any bylaws regarding letting in your locality, which may include local licensing schemes.
You might need to get regular gas safety inspections or take alternate home insurance.
Where multiple lodgers reside with you: this may fall under requirements for houses of multiple occupation or “HMO” licensing, which can involve requirements around fire protection and electrical installations, among others.
It is vital to take all these aspects seriously. Failure to comply with HMO licensing can incur fines in the tens of thousands of pounds, and the rules are well enforced. Breaching your mortgage conditions could result in the repossession of a property.
And finally, for those in a leasehold property, you need to ensure the terms of your lease do not prohibit you from taking a lodger or sub-letting. Breaching your lease agreements can again end in repossession.
If you need help with any of these types of transactions, contact us for more information.