A Guide to Mortgage Subletting

If you own your home and are interested in taking in a lodger you may well be concerned whether this would be classed as subletting and how that might affect your mortgage.

This guide will cover everything you need to know about subletting and what the knock-on effects could be on your existing home loan.

It will also cover how you can get a sublet mortgage, what the eligibility requirements are, and how to find the best rates.

What is subletting?

Subletting is when an existing homeowner lets all or part of their home to someone else. That person is known as a subtenant, and they have a tenancy for all or part of the property which is let to them.

You can choose to sublet your whole property or just a room.  If you sublet a room, you will still be able to live in the rest of the property, but the new tenant would have sole use of their room or sublet area.

How could it affect your current mortgage?

This will depend on the terms and conditions of your current lender. Some mortgages allow for you to sublet a room and take in a lodger, others won’t. The best way to find out is to check the small print.

If you’re considering subletting all or part of your home, you must speak to your lender directly.

They will either say it is fine for you to sublet or will guide you through the process of changing your mortgage or gaining permission to rent out a room in your home.

Not telling your lender could have quite serious repercussions.

If your lender finds out, they are within their right to demand you repay your whole mortgage immediately or possibly, but rarely, consider plans to repossess the property.

Which mortgages are best for subletting?

The best mortgage for you will depend on your subletting plans.

If you only want to take in a lodger every now and again or even just for one period due to your personal circumstances, it may well be best to find a mortgage that allows you to have a lodger, rather than one specifically designed for subletting.

If, instead, you want to regularly sublet your home and have lodgers on a permanent basis,  getting a specific subletting mortgage may be more suitable for you.

If you are planning on investing in a property for letting purposes, then you will need to get a buy-to-let mortgage.

Often these are interest-only mortgages that are used to invest in a second property, and are quite different from a first-property residential mortgage.

How to get a sublet mortgage

If you’re looking for a sublet mortgage there’s a few simple steps you can follow to make the process much more straightforward.

Here’s how we recommend you do it:

1. Get your documents ready: Having your paperwork ready in advance can help you save precious time. As you’re applying for a subletting mortgage, make sure you know how much rental income you expect to receive, as well as your current mortgage statements to prove you are keeping up with the payments. Take a look at our guide to mortgage applications to find a full list of exactly what you’ll need.
2. Check your credit reports: Regardless of what type of mortgage you’re looking at, all lenders will want to check your credit history so it’s also a good idea to have a copy of your report beforehand. This will allow you to correct any inaccuracies and remove any details that are out of date or just wrong. You can download your credit record through our dedicated credit reports hub.
3. Speak to a mortgage broker: Once you’ve got your documents together, the next step is to speak with a broker who has experience dealing with subletting mortgages. They will be able to guide you through the process and manage your application from start to finish. As these types of mortgages are quite unique, this could save you a lot of time going back and forth trying to find the right lenders who can offer the best rates.

Our free, broker-matching service will quickly assess your needs and circumstances to pair you with a mortgage advisor who’s ideally placed to help you – Make an enquiry to get started.

What is the eligibility criteria?

Lenders have specific requirements for mortgages that allow subletting.

Firstly, your current mortgage account needs to be up to date, with no arrears. Your lender will also check whether you’ve made payments on time for the previous six months.

You’ll need to rent out your property using an acceptable tenancy agreement, such as an assured shorthold tenancy.

Different lenders have varying policies on this. It’s best to check with your mortgage provider.

Some lenders also stipulate that you can’t rent out your property on more than one tenancy agreement.

You must also tell your building and contents insurance provider about your new mortgage arrangement, as it might affect your cover.

The general mortgage eligibility requirements also apply:

What about the deposit requirements?

In general, lenders like to see you have at least a 20% deposit before approving you for a subletting mortgage, however, this will vary between providers.

Just as with all mortgages, having a larger deposit increases your chances of being approved for a subletting mortgage and the opportunity of getting better rate offers.

If you don’t have this kind of money up front, you may still get approved. Lenders may instead require you to have a larger annual income so they can be confident you will be able to keep up with the repayments.

How to find the best lenders and rates

Looking online will demonstrate that it is very difficult to find subletting mortgage rates.

This is because most high street lenders – such as Santander, Barclays and Nationwide – consider these types of mortgages on a case by case basis.

They tend to offer them in addition to your current mortgage.

As a result, finding the best rates can also be tricky if you’re trying to do this on your own.

While you may be able to eventually find a decent rate, a broker will be able to find you a better deal. They also have access to exclusive rate offers that aren’t publicly available and put you in contact with specialist subletting mortgage lenders.

Get matched with an experienced subletting mortgage broker

If you’re looking to get a sublet mortgage the best thing you can do is to speak with someone who has experience dealing with this type of lending.

Being paired with the right broker based on your needs, circumstances, and the type of mortgage you need, will help you find the best rates available. That’s where we can help.

Get in touch with Online Money Advisor on 0808 189 0463 or make an enquiry.

We’ll put you in touch with one of the buy-to-let brokers we work with who has experience with mortgages for subletting and has access to lenders across the whole of the UK.