Q&A; Do I need a buy-to-let mortgage to take a lodger or sublet?

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.

• Guides and tips
• Mortgage Broker Q&A
• Regulation and legal

Q&A; Removing a party from a joint mortgage

Question; I have a joint mortgage currently; we want to change it to being solely in my name or my partners; what do we need to do?

Firstly you need to establish whether your existing mortgage is still within any tie-in period and what penalty for early repayment may apply.

Then you need to check with the lender whether they are happy for the mortgage to transfer to a sole basis, which will mainly come down to their assessment of whether it is affordable to you as a single applicant.

They will re-assess the affordability of the case as if it was a new mortgage. If they are happy you can afford it alone, then the land registry and title will need amendment and a new mortgage contract issued.

That process will require a solicitor or conveyancer to act; you will have to pay for a transfer of equity, usually costing a few hundred pounds.

Depending on the size of the mortgage and the property valuation, it is possible stamp duty may also be chargeable. You should consult your conveyancer on this aspect, as it is a complex field.

However, if the lender is not satisfied the loan is affordable to you alone, they can refuse to remove a party from the loan. That would mean finding a different lender and paying any early repayment penalties to change if a suitable option is available.

If an early repayment penalty is due to end within a few months, you may be able to arrange this as part of a normal remortgage and defer completion until the penalty ends. If it ends more than six months from now, or if you require the release of the other party sooner, you have to pay any applicable penalty.

As well as affordability, the lender will usually re-assess you as a credit risk and possibly the property value.

If you are considering transferring a party from a loan due to bankruptcy proceedings, the solicitors will be made aware of this, and the transfer will not be possible.

As usual, if you need further information about this call 0345 4594490 to speak to a mortgage advisor about your circumstances.

• Guides and tips
• Mortgage Broker Q&A
• Regulation and legal