It has become an increasing trend for many thousands of homeowners to let their homes without informing their mortgage lenders. Banks are determined to stamp this practise out and calling these homeowners “accidental landlords”. 

Lenders are “wising up” after suspicions had been aroused because of the high numbers of people using this method to avoid having to switch to a higher buy-to-let loan or to having to pay a higher interest rate.

Lenders are tracking down the people who are abusing the system by studying electoral registers, online and letting agencies and even social media websites, to find out who is the registered person at addresses and to catch out properties that have been rented without informing lenders.

 

It has been suggested that these “accidental landlords” could make up more than 30% of the letting market. This is in spite of the positive recovery signs of the housing market, but many people are unwilling or able to sell their property or are in a state of negative equity.

It is common knowledge that these types of borrowers are increasing on a daily basis and of course lenders are losing out as they are unable to change the loan to a higher buy-to-let one or increase the rate.

The lenders are now pursuing an active crack-down.

Ray Boulger, a broker said: "We know there are many borrowers who have let their property but failed to inform their lender. Before the financial crisis lenders didn't often check whether borrowers were still living in their property, but they are increasingly doing things like checking the electoral register to see who lives at an address and looking on letting websites to see if a property is listed. These borrowers now run a much greater risk of being caught."

Lenders hold the view that buy-to-let properties are a higher risk because there is every chance of void periods and cases of tenant non-payment. It is within the terms of the mortgage that borrowers must tell the lender that they are going to let the property which can mean an increase of between 1 to 2 percentage points, together with the obligatory administration fee.

Mr Boulger said: "If a borrower has 20pc equity in their home they have the option to move to a more competitive buy-to-let mortgage with another lender. But for those in negative equity, they are stuck with their existing lender and must accept whatever they offer."

The majority of lenders have different ways of dealing with requests to renting out a borrowers home.

Residential customers of Barclays are given two options – either they can switch to a buy-to-let mortgage before renting the property out, or request "consent to let", allowing them to let their property for up to two years and having no change to their rate.

The Co-operative Bank charges their borrowers if they switch with a £55 admin for the paperwork and transfer as well as a 1 percentage point increase on their interest rate.

HSBC takes the policy that if their residential mortgage customers rent their property for 12 or months or less then they can stay on the same rate, however they do expect them to switch to a buy-to-let deal if the rental period is longer.

 

Nationwide sent out shockwaves upon announcing that rates would go up by 1.5 percentage points for those residential borrowers who let their property for more than six months and charge a £30 administration fee.

Santander may consider "consent to let" requests from residential borrowers for short-term letting arrangements. A fee of £295 is applicable but borrowers will be able to stay on their existing mortgage. However those borrowers who are going to rent their property for an extended period must move to a buy-to-let mortgage in most cases.

Of course it is always in the background of one’s mind that it might be worth a gamble to rent out a property and not to inform the lender. It just is not worth it as terms of the mortgage will be breached and in some cases lenders have been known to demand full and final repayment, causing borrowers to default. The other point is that the home insurance policy would instantly become null and void.

Andrew Montlake who works for a mortgage broker said: "Mortgage lenders are getting tough on this and I would encourage borrowers to be honest and upfront with their lender. Some of the lenders are more approachable, but they still need to treat customers a bit better, especially if they have a genuine reason to let out the property."

Aaron Strutt another broker, said: "If the lenders want more of their customers to tell them that they are letting their properties out, many of them should not be so quick to raise their rates. Many home owners don't want to let out their property, but they do it to ensure the mortgage repayments are kept up to date. At the moment, honesty is costing some home owners a lot of money."