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I am in the process of buying my first house. I started visiting only a couple of months ago, but I found the right place faster than expected and I’m ready to complete it in about a month.
My problem is that I am currently renting and my lease doesn’t end for another four months.
My landlord is unwilling to terminate the lease early, so I am faced with having to pay both rent and mortgage for three months. Considering all the other costs I’m facing right now, it’s going to be a huge financial stretch.
Mortgage help: In our column Navigate the Mortgage Maze, broker David Hollingworth answers your questions
The way I see it, my only option is to rent the new property for the three months between its completion and my move. I can’t sublease my rented home because the lease doesn’t allow it.
I live in a popular tourist town and will probably rent it on Airbnb. It seems less risky than hiring a tenant and giving them a contract.
Will this cause any problems with my new mortgage? Do I have to tell the lender if I am not moving right away?
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David Hollingworth replies: Congratulations on finding your first home and taking your first step on the real estate ladder.
That will undoubtedly be a significant expense when juggling the deposit requirement along with all the other purchasing costs, including fees such as inspection fees and legal costs.
Hopefully you’ll avoid stamp duty due to first-time buyer relief, which continues in its current form until the end of March.
Expensive overlay
Clearly, it’s not easy to schedule a purchase at the exact moment you move out of your rented accommodation.
Much will depend on the timing requirements of your chain, and while it is preferable to negotiate a schedule that suits everyone, your seller and those further up the chain may not want to wait for your lease to come to an end. .
Your ability to move quickly may have been part of the reason your offer was preferred, and from your perspective, trying to procrastinate could risk losing the property.
That leaves you with an expensive overlap period to take on for a few months. It’s understandable why many return to friends and family to avoid signing up for a new tenant, but that may not always be an option.
It sounds like you’ve already tried to come to an agreement with your landlord, and reaching an agreement halfway could have saved you the worry of paying for both properties for the full three months and still given you enough time for your landlord to find an alternative tenant.
As you point out, the lease agreement will prohibit subletting the property.
In any case, that could expose you to the risk of the tenant not paying or treating the property poorly, which could put your deposit at risk.
Mortgages have rules about rent
A standard mortgage is designed to provide financing for the purchase of a home in which you will live.
Therefore, the mortgage provider for your new home will expect you to live in the property as owner occupier and renting it out will breach the terms and conditions of the mortgage.
It is possible to request a lender’s consent to rent the property, but they are not required to accept it.
If it were a change of circumstances and the need to live and work abroad for a period, then a lender would be more likely to agree, rather than being asked to agree from day one.
Even if they agree, the lender could charge a fee, a higher interest rate, or both.
A standard guaranteed lease would normally last a minimum of six months, which would clearly cause you another headache by overlapping the end of your current lease.
Could you take in a tenant?
Having a tenant in your new home could be a way to help you cover the cost of rent in addition to the mortgage and relieve some of the stress during the first three months.
Lenders will usually be relaxed about a tenant living in the property as you will also be present.
They will usually want the tenant to know that a mortgage exists to recognize that they would have no rights of residence if the lender were to repossess them.
There is also a room rental allowance allowing you to earn up to £7,500 tax-free.
Our reader lives in a popular resort town and would like to rent it out on Airbnb, but Hollingworth suggests that leaving the entire property on the platform may be a problem.
Airbnb could work as a platform to rent a spare room short-term and be in a tourist city that can help you generate an above-average income.
Leaving the entire property on Airbnb could be more problematic, as a series of short-term rentals does not fit well with lenders’ need to obtain consent to rent.
However, there are some lenders who are now building flexibility into their mortgages to give homeowners the ability to rent out their home on Airbnb. Typically, some restrictions on duration will apply.
For example, Barclays will allow licensed Airbnb rentals (not a lease) for up to 90 days per year if they are not for more than 30 consecutive days.
Other lenders, including Metro Bank, Nationwide and Natwest, also have some flexibility, but you should explore your lender’s approach.
If you are able to rent the new home, you should also ensure that your insurance will still be valid.
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