Will my mortgage lender find out if I apply for a property licence?

Tuesday, June 21st, 2016 - By Richard Tacagni, Managing Director at London Property Licensing

Richard Tacagni, Managing Director at London Property Licensing

If you are renting out your property, you need to ensure that you have permission from your lender or you could find yourself in breach of the terms and conditions of the mortgage, and that is not a good place to be!

It is an issue I often get asked about and one that causes much confusion. If you are an ‘accidental landlord’ on a normal residential mortgage, you will need consent from your lender to rent out the property.

For landlords on a buy to let mortgage, you need to be clear what restrictions apply. While you may be allowed to rent out your property to a single household, you might not be allowed to rent out individual rooms to unrelated individuals. By doing so, you will be creating a house of multiple occupation (HMO) and that may breach the terms of your mortgage.

With the expansion of property licensing schemes across the country, this issue is affecting more and more landlords. In many areas, property licensing is no longer restricted to HMOs on three or more storeys with five of more occupants who share facilities.

It is now quite common to come across additional licensing schemes that extend licensing to smaller HMOs with just 3 or 4 occupants, or selective licensing schemes that extend licensing to all rented properties. You need to check what rules apply in your area.

So what happens when you apply for a licence? Well, as part of the application process there is a requirement for the applicant to let certain people know in writing that an application is being submitted.

There is a requirement for the applicant to notify the mortgage lender, freeholder, leaseholders, licence holder, managing agent and anyone else who has agreed to be bound by a condition in the licence. So your mortgage lender will find out about the licence application and failure to disclose the lenders details would be a criminal offence.

But there is more. It is a two stage notification process. So in addition to you telling all relevant people about your application, the local authority will also do the same. By law, the local authority must send a copy of the proposed licence to all relevant people and allow them 14 days to make any representations before the licence is approved or refused.

Faced with this predicament, some landlords find themselves in a very tricky position. Apply for a licence and risk action from the mortgage lender for breaching the terms of the mortgage, or don’t apply and risk prosecution by the local authority for failing to get the property licensed. The only option may be to re-mortgage the property and potentially face a hefty redemption penalty.

By breaching the mortgage terms, you may also undermine any future borrowing arrangements and risk the lender calling in the mortgage and requiring full repayment at short notice; plus, does the property deal stack up financially if you have to revert to single family use – all important issues to consider.

So in conclusion, it is always best to keep things simple and make sure you have the correct mortgage in place for your property. If you do need mortgage advice, you can find mortgage advisors listed in our Landlord Suppliers Directory.

If you have any questions or need advice about housing regulation, please complete the London Property Licensing Contact Form.