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Couple of days I've asked a question - How long I should pay the mortgage to break even when selling? (is 2 years enough) - as you can tell I'm thinking about taking a mortgage.

I'm trying to gather as much information as possible - the problem is - most of the guides assume people buying home with the intention to live in them. Because London is so expensive I cannot afford a place I would like to live long term.

Hypothetically (don't quote me on that in case any of the lenders will search my name) the intention could be to allow rental income to pay off the mortgage - even if each month I'd be £100 short, I'd be repaying £1000 towards principal and interest and in 25 years I'd become the rightful owner of the place - and I could use the income from selling to buy a ticket to Mars.

Some research:

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Here is a good answer: https://www.theguardian.com/money/2015/jan/08/buying-to-let-while-renting

Although we would love to buy in London, we cannot afford the deposit for anywhere we would want to live.

So they asked if they could buy a property and then rent it out:

And the answer is no, you can’t. Residential mortgages are for properties that the borrower will live in and call home. If you want to buy a property which you will rent out and never live in, you need a buy-to-let mortgage which could be tricky.

Of course it would be irresponsible to take 'no' as an answer...

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Another good answer: http://www.thisismoney.co.uk/money/experts/article-2462805/Can-I-let-new-house-telling-lender.html

Is often a time limit before you can rent it out?

And two opinions:

It will depend on your lender and individual circumstances, but your mortgage deal could be kept the same and your lender will provide you ‘consent to let’ without any additional charges, however that is very much at their discretion. Nowadays they will want to charge you for consent-to-let, possibly add a premium to your mortgage interest rate, and ultimately limit how long you can stay on the standard mortgage before being shunted on to a buy-to-let one.

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Another great answer: http://blog.moneysavingexpert.com/2016/04/19/can-you-rent-out-a-home-bought-with-a-help-to-buy-isalifetime-isa/

However, in accordance with the rules of the Help to Buy ISA scheme, if a person claims a Help to Buy ISA bonus and does not intend to make the property their home, the Government will seek return of the funds. I haven’t yet received information on how it’d happen in practice, nor whether there’d be a fine (I’m assuming not from reading the statement above). Of course if you are switching to renting at some point, you should get your mortgage lenders permission (which can be tricky) or switch to a buy-to-let mortgage.

Sidenote - http://jakoszczedzacpieniadze.pl/jak-kupic-10-mieszkan-na-wynajem-na-kredyt-hipoteczny - author of a very popular podcast about managing money has a plan to acquire 10 buy-to-let flats using personal mortgages... If he call pull of such a stunt I should be allowed to start with one.

What I should do:

  • read the small print
  • negotiate with bank
  • inform the bank
  • switch to "buy-to-let"

Are there any considerations and "must known" gotchas?

UPDATE: https://www.gov.uk/stamp-duty-land-tax/overview - https://www.gov.uk/stamp-duty-land-tax/overview - Government had scored “a spectacular own goal” by raising stamp duty rates to 12 per cent for homes worth more than £1.5 million

PS: To anyone facing similar dilemmas - ISA is the no-brainer - https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/ - "The Government will top up your savings by 25%" up to £3000 - it's essentially free money and I cannot see any downside.

EDIT / UPDATE: https://blog.moneysavingexpert.com/2016/04/can-you-rent-out-a-home-bought-with-a-help-to-buy-isalifetime-isa/ - same link, but probably an updated content. Seems like the rules changed now. UK is a country with long history of land ownership, I should have considered that back in 2016.

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  • Have you considered asking the lender? "My job may take me elsewhere in 1-2 years", but this isn't certain. Can I rent if, in the future, I need to move house?" It seems you've already gathered up research, and it's inconclusive. The bank will give you a straight answer.
    – JTP - Apologise to Monica ♦
    Oct 14, 2016 at 14:24
  • So it's legwork anyway - calling banks, arranging appointments, presenting my case... Wish banks were running their AI on forums like this and compete for business. Alternatively I can consult mortgage advisor but I don't believe they have my best interest in mind. Thank you for suggestion anyway!
    – Mars Robertson
    Oct 14, 2016 at 15:05
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    Your question is great, pretty straightforward. The problem is that the answer may not be fixed, it might vary between lenders. I can tell you that in the US, it's common to have a one year rule. At the closing, I sign that I will stay for one year. But if these rules are not law within your country, we are back to each bank having their own requirements, and it's the legal forms you sign that take priority. You might just get an answer on a quick phone call.
    – JTP - Apologise to Monica ♦
    Oct 14, 2016 at 15:09
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    ISA is not free money. It is a government incentive program to help people that cannot afford to buy a home in hard cash get a roof over their heads (must be mortgaged). The downside is that you are expected to live under that roof. Q:Do I have to live in the home I am buying? A:yes. - but read the end of this answer. If you are with the armed forces or your employment circunstances demand it, then you can rent it.
    – Mindwin Remember Monica
    Oct 14, 2016 at 18:23
  • You've done a fair amount of research, looks like it gives you the answers you need?
    – AndyT
    Oct 20, 2016 at 16:46

2 Answers 2

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What you are doing is unethical and illegal but is very hard to catch and prosecute. The key thing for an unethical person to think about here is insurance.

For most government incentive programs you have to have the intention to live there. It is extremely hard to prove intent - unless you ask this question under your name on a public forum that is archived by many search engines and maintains a log of all changes.

For other folks, it is common for them to claim that they intended to take residence but were surprised that their finances didn't work the way they anticipated.

Still, as long as the bank is paid, it is unlikely that they will investigate.

However, what happens if there is a major repair needed? You have insurance - because your bank has asked for proof of insurance before they will give a mortgage. That insurance is for an owner occupied building, which you do not have.

Your insurance will inspect your claim. If the circumstances do not match what you are insured for because you have lied to the insurance company, they will not pay your claim - which they are entitled to do.

You are operating uninsured with tenants. This is a hidden risk you may not be considering. Tenants do not treat property with the same care as an owner - this is why they are insured differently. You are now paying for insurance that you will have a difficult time ever filing a claim on.

In addition, if something were to happen that makes it time to claim the insurance value so that you can pay off the mortgage, the insurance company will investigate. They may very easily refuse to pay your fraudulent claim. They may refer you to the police for insurance fraud. The bank will want their money. If they discover that you were not occupying the property, they may just foreclose. They may also notify the government that you were not occupying the property, at which point some one might search and find that you were showing intent to defraud the program out of money that is free for you but gotten through deception.

Consider a less risky unethical path like telling people you've been locked out of your car and just need a little money to pay the locksmith to open it. You promise to pay them right back once you get in your car where your wallet is. Then take their money and go find another sucker. It's ethically equivalent and you are much less likely to go to jail. However you have to face the people you are deceiving for money, so you may feel less comfortable. Good luck making your decisions!

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  • I hear your point, but in my reality - reason, logic, rationale - What you are doing is unethical and illegal - asking well researched questions and broadening the body of available knowledge, trying to know HOW MANY YEARS REQUIRED ? An unethincal example would be to register a vehicle in some rural area (lower insurance rate) while driving all the time around London (higher insurance rate).
    – Mars Robertson
    Apr 18, 2017 at 13:32
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    @MichalStefanow I think you are fooling yourself. You are entering into a contract dishonestly, signing statements you know to be false, and taking an incentive that is for someone else under false pretenses to benefit yourself and undermine the intention of the incentive. An example of another unethical dishonest action does not make yours more honest. What is the difference between the car example and what you are doing? Why wouldn't you do the car example? You are what you do.
    – MattK
    Apr 18, 2017 at 15:33
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    @MichalStefanow - btw, this comment is very telling: it sounds like you feel laws and rules should not apply to you because your needs are the most important. It's ok - just be honest with yourself. You are what you do.
    – MattK
    Apr 18, 2017 at 15:41
  • the comments you've linked - ` I can change my name, nationality, country of residence to achieve desired results` - using freely available opportunities available to everyone. Another good example of what you say of being dishonest is becoming strategically unemployed. Did I do any of these things? Neither confirm nor deny 😎
    – Mars Robertson
    Apr 19, 2017 at 7:02
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One lender's explanation of getting permission to rent out. The implication is that it is straightforward with a 1% extra interest to pay. However, there is no guarantee that permission would be given, so there might be a risk.

http://www.nationwide.co.uk/support/support-articles/manage-your-account/letting-your-property/letting-your-property-overview

Definitely renting out a property with a residential mortgage is not a good idea.

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