Differences between Consent to Let and Buy to Let Mortgages

If you need to rent out a property and have a mortgage on it, depending on your circumstances, you should have either a consent to let or a buy to let (BTL) mortgage. Understanding the differences between these can help you make an informed decision aligned with your goals.  

What is a Consent to Let Mortgage?

An owner occupier of a residential property with a mortgage will need a “consent to let” from their mortgage lender if they wish to rent out their property temporarily without having to switch to a BTL mortgage. In order to obtain a consent to let, they will need to provide their mortgage lender with a valid reason, such as having to relocate for work or a temporary move abroad, together with the supporting evidence. Typically, such consent is granted for a limited period, usually for a maximum of one or two years, after which the homeowner will need to revert to owner occupation or take out a BTL mortgage.  

Lenders may charge an administration fee or slightly increase the interest rate during the consent period. Additionally, some lenders might impose conditions, such as requiring a minimum amount of time on the residential mortgage before granting consent. Nevertheless, for homeowners who find themselves needing to rent out unexpectedly, consent to let can provide a flexible and cost-effective solution without the need to refinance immediately.  

Key Features of Consent to Let

1. Lower interest rates compared to BTL mortgages: Consent to let typically means lower interest rates because it is based on an owner-occupied residential mortgage product rather than a BTL, which lenders view as higher risk. This means that homeowners can save money on monthly payments during the consent period. However, the rates might still be slightly higher than standard residential rates due to the added risk of renting out the property.

2. A temporary solution, often limited to one or two years: Consent to let is designed as a short-term option, usually permitted for a maximum of one to two years, making it ideal for homeowners who only plan to rent out their property temporarily. After this period, lenders generally expect the homeowner to move back into the property or switch to a BTL mortgage. This limitation makes it less suitable for those considering long-term rental income as part of their financial strategy for the property.

3. Lenders might charge a fee or increase interest rates slightly for the consent period: While the interest rates for consent to let are generally lower than BTL rates, lenders may apply a small fee for processing the consent request. Additionally, some lenders might raise the interest rate slightly during the consent period to offset the perceived increased risk associated with renting out the property. These additional costs can vary between lenders. In any event, homeowners should review their mortgage terms carefully.

Pros:

• Cost-effective for short-term letting.

• No need to switch mortgage products immediately.

Cons:

• Not suitable for long-term rental plans.

• Limited by lender consent.  

What is a BTL Mortgage?

A BTL mortgage is designed for properties purchased specifically for renting out to tenants. Its terms prohibit the owner or a related party from occupying the property. Unlike owner-occupied residential mortgages, BTL mortgage products typically carry higher interest rates and stricter eligibility criteria due to the increased risk perceived by lenders. Borrowers are usually required to provide a larger deposit, often around 25% or more, to secure the loan. Additionally, lenders assess affordability based on projected rental income, which must usually exceed the mortgage repayments by at least 125%. Most BTL mortgages are interest-only products, which reduces monthly costs but means that the original loan amount remains outstanding until the final repayment date. In some cases, this might make it necessary to sell the property for repayment purposes. BTL landlords must also consider additional costs, such as property maintenance, restricted tax relief on mortgage interest costs unless the property is owned by a company and service charges, which can impact overall profitability. This type of mortgage is best suited for those who view property as a long-term investment and are prepared to manage the responsibilities of being a landlord.

Key Features of BTL Mortgages  

1. Typically requires a 25% deposit: A BTL mortgage usually demands a larger deposit than residential mortgages, often around 25% of the property's value, though some lenders may require more, quite possibly even up to 40%. The higher deposit reduces the lender's risk, making it a normal condition for mortgages on investment properties. For landlords, this means making a substantial equity investment, which can limit access for many.

2. Higher interest rates than residential mortgages: Lenders view BTL mortgages as riskier due to the potential for rental voids or tenants defaulting on payments. As a result, interest rates for these mortgages are generally higher than those for standard residential loans.

3. Often interest-only, reducing monthly costs for landlords: Many buy to let mortgages are interest-only, where landlords pay just the interest each month without reducing the principal loan amount. This approach lowers monthly payments, making cash flow management easier for landlords. However, it also means that the full loan amount will still need to be repaid at the end of the term, either through property sale proceeds or another repayment plan.

Pros:

• Suitable for long-term rental investments.

• Interest-only monthly payments.

Cons:

• Higher costs and stricter eligibility criteria.

• Large final repayment.  

Conclusion

Choosing between a consent to let or BTL mortgage depends on your rental intentions and financial situation. If you are an “accidental” landlord who needs to move temporarily for work or other unforeseen circumstances, a consent to let is a cost-effective short-term solution due to its lower interest rates and lighter requirements. If you plan to rent out your property as a long-term investment, however, a BTL mortgage will be necessary. Despite higher costs and stricter criteria, it offers the flexibility and stability needed for managing rental properties over an extended period. Understanding your goals, the expected duration of renting and financial readiness can help determine the best option.  

FAQs   

Q. Can I get a consent to let if I have just started my residential mortgage?

A. Most lenders require you to have held your residential mortgage for a minimum period, usually six to twelve months, before considering a consent to let request. This condition ensures that you did not take out the mortgage with the intention of renting your property out immediately.

Q. What happens if I want to continue renting after the consent to let period ends?

A. If you wish to continue renting out your property after the consent period expires, you will need to switch to a buy to let mortgage. Failing to do so could breach your mortgage terms, leading to penalties or even demands for immediate repayment. Some lenders may extend the consent period, but this is not guaranteed and, if granted, can come with additional costs.

Q. Are the interest rates higher for buy to let mortgages compared to consent to let?

A. Buy to let mortgages generally carry higher interest rates than consent to let options. This is due to the increased risk perceived by lenders for long-term rental investments. Consent to let rates are often closer to residential mortgage rates but may include a small premium or fee for the temporary rental arrangement.

Q. Do I still need to follow landlord regulations if I am renting under consent to let?

A. Even if letting your home is a temporary measure, you will need to abide by all rental regulations, such as fitting smoke alarms, acquiring a gas safety certificate, complying with energy performance regulations and so on.

Q. Which option is better if I plan to move back into my property eventually?

A. Consent to let is usually more suitable if you intend to move back into your property after a temporary rental period. It allows you to maintain your residential mortgage terms without committing to a full buy to let arrangement, which can be more costly.  

Additional Sources:

https://www.tembomoney.com/learn/buy to let-vs-consent-to-let

https://www.sunnyavenue.co.uk/insight/is-consent-to-let-better-than-buy to let

https://www.uswitch.com/mortgages/consent-to-let/#:~:text=Each%20lender%20has%20their%20own,mortgage%20arrears%20or%20late%20payments

https://www.comprethemarket.com/mortgages/content/consent-to-let/