Can you let a property without a buy-to-let mortgage?

If you’re wondering if you can rent a property to tenants without a buy-to-let mortgage, you should think about how insurance works. You wouldn’t take out pet insurance for a holiday, or home insurance instead of landlord insurance. When you let out a property, you need a buy-to-let mortgage.

What is the difference between a residential and buy-to-let mortgage, anyway? It’s clear-cut: a residential mortgage is for a property you intend to buy and live in yourself, whilst a buy-to-let mortgage is for a property to be occupied by tenants in exchange for rent.

Letting a property without the right mortgage is fraud. But landlords letting a property with a residential mortgage is probably more common than we think, it could be unintentional or a blatant disregard of the mortgage terms and conditions. Here’s two ways a landlord could end up with the wrong mortgage:

  1. They make a residential mortgage application with no intention of notifying the lender that tenants will move in.
  2. They buy a second home and decide to rent out the first. This could be a deliberate choice or they’ve ended up as one of many accidental landlords. Subsequently, they don’t notify the lender and may switch mortgage providers to avoid tricky questions.

So, what happens if a lender finds out a landlord is renting a property out on a residential mortgage? Your mortgage terms and conditions should make this clear, but typical penalties include:

  1. The outstanding mortgage is asked to be paid in full immediately.
  2. The mortgage type is changed by the lender to a buy-to-let mortgage at a higher interest rate.
  3. Financial penalties added to your mortgage or to be paid as a one-off fee.
  4. Your landlord insurance could be invalidated. If, for example, the property was damaged partly or wholly by fire or flood, you may not be able to claim a single penny on your insurance.

You may be asking why a landlord would take the risk, and the answer is limiting costs. A residential mortgage is much cheaper than a buy-to-let type as the interest rates are better and there aren’t usually as many product fees. Buy-to-let lending is considered higher risk to lenders as even with insurance, you’re relying on a tenant paying rent to afford your mortgage payments.

In our opinion, is not worth taking the risk and you should always ensure you have the correct type of mortgage on your property.

Upad are the UK’s largest online letting agent and winner of Best Online Agent at the ESTAS 2017. Upad offers a low-cost solution to landlords looking to advertise their property on Rightmove and Zoopla, finding tenants quickly and easily.