Bank and building societies are taking a keener interest in whether borrowers are renting out properties without their permission, Telegraph Money has learned.
This involves further quizzing of borrowers at the mortgage application stage as well as on-going scrutiny to check, for instance, whether borrowers continue to live in the mortgaged property.
Several lenders are reported to be going even further and adopting data-sifting techniques like those used by HMRC to spot tax-evasion.
This involves trawling the internet to see whether properties they lend against on a standard, “owner-occupier” basis are being advertised to let by their owners. This would break typical owner-occupier mortgage contracts
The move is the latest aspect of a crackdown on amateur or “armchair” buy-to-let investors initiated by the Bank of England last year.
The Bank was worried that an increase in mortgage rates – coupled with rising taxation of property investments being phased in between now and 2021 – could force landlords into difficulty and destabilise the wider housing market.
To meet these regulatory requirements about “affordability”, lenders are now asking detailed questions about all applicants’ other properties and demanding to see proof of lenders’ “permission to let”.
In one instance seen by Telegraph Money, a borrower going through a mainstream re-mortgage was asked for evidence that another property they owned was being let with the explicit permission of the other lender.
While credit checks will bring any existing mortgages to light, it will not be clear whether these are standard or buy-to-let mortgages. Until now, lenders would rarely have checked, mortgage brokers say. By contrast, today most institutions want to be able to prove to financial authorities that they have fully assessed an applicant.
David Hollingworth, mortgage analyst at broker London & Country, said: “The need to check affordability now means a lender needs to be in possession of the full picture, down to quite a micro level. They need to understand all of a borrowers’ commitments and income – and they generally need hard evidence.”
Ray Boulger of rival broker John Charcol, said: “Lenders have access to more tools now and they’re using them. Ten years ago, it would have been difficult to carry out some of these checks, but now it’s far easier.
“Clearly there are a fair number of people who do let property without telling their lender. If you do this and you have a standard residential mortgage, you’re in breach of the contract.”
In most cases lenders will allow borrowers with standard mortgages to rent out the property at least for the short term, although a fee or higher rate may apply.
Major lenders would not confirm whether they were running HMRC-style checks as a matter of course.
A spokesman for the Council of Mortgage Lenders said: “Without consent, many mortgage terms and conditions entitle the lender to seek immediate repayment of the total mortgage balance if there is a breach of the terms of their mortgage contract.
“While this may not happen in practice, there are very important consequences for the borrower to consider – for example, if damage occurs to the property their insurance may be invalidated.”
Rob’s Comments. The financial institutions are going to have their work cut out for them with this one. If you have an illegal BTL you better get it change to one ASAP.