Renting out a house without the permission of the lender is fraud. Ba Dum tsss. 🥁 So, that hits hard.
In the Netherlands there is a tolerance problem surrounding the rental of owner-occupied homes. After all, it is not rocket science to compare the data from the Land Registry (Kadaster) with that of the loan administration of the mortgage lender and then send a note. If you have bought a house and have a mortgage on it, you may not rent out the house without the permission of the lender. That is simply stated in the rental clause. There is a good chance that the bank will not agree if you request permission for rental. This often results in an unpleasant situation, for example if you want to live closer to your partner or have to move abroad for work.
Fortunately, there are enough mortgage lenders working on product development, so that the current mortgage can be converted into a “leave-to-let mortgage”. That way you can remain a customer and rent out your property.
Permission for rental?
The fine print of almost every mortgage deed contains conditions that almost all mortgage lenders apply, which prohibit renting out the home unless the mortgage provider gives explicit permission to do so. Such permission is rarely granted in practice. Permission is usually only given when the mortgage balance is significantly lower than the value of the home. Only with a favorable loan-to-value (LTV) providers dare to let. Even then, not every bank agrees.
What do you do when your employer makes you a fantastic offer for a challenging position in New York? Or when the love of your life owns a beautiful farm for both of you on the other side of the country? Most people will want to move and would prefer to sell their house or keep the house and rent it out.
In the overview below you can read how flexible all mortgage lenders deal with renting out the owner-occupied home. No provider gets five stars and most even score very badly. It is clear that lenders have no interest in renting out the collateral.
Renting out risks without permission
The house is mine, right? Do I just pay the mortgage every month? But if I secretly rent out the house, nobody will find out, right? In practice, many people rent out the house without asking permission from the bank.
However, there are considerable risks associated with this. Not only for the bank, but also for you.
Suppose now….
- A tenant in your home starts a cannabis plantation;
- The person refuses to pay the rent every month and refuses to leave the house;
- The house is neglected, so that the house threatens to become unsaleable;
- The mortgage is claimed and you must immediately repay the full amount;
- Due to the foreclosure right, the property is sold and put up for auction;
- You are registered in a fraud register of the Stichting Fraudebestrijding Hypotheken (SFH), which means that you will no longer be able to get a mortgage in the future.
The rental income often yields much more than the monthly costs. You can see this as building up a part of your pension or as passive income, so that you may be able to work one day less. The possibility to live where you want at that moment is also a nice side effect. However, there are great risks associated with unauthorized permission to rent out the house.
Of course you don’t like that. After all, it is your home. The lender of the mortgage does not like it either, since the house serves as collateral for the loan you have with them. When the collateral is worth less, the risk will be greater that the lender will run on the mortgage loan. Because of this risk, the bank will be inclined not to give permission for letting. The loan-to-value influences the risk that the bank has in the books. The value must remain as high, because then the risk remains as small as possible.
Fortunately, this is of course not the whole story. There are both advantages and disadvantages to renting out the property. Selling the house with the chance of a residual debt is in nobody’s interest. Therefore, renting can be an interesting choice, so that you can hopefully cut costs or possibly even make a little profit each month. Renting is often only a good idea when there is a positive cash flow. Renting out the house simply yields more than the monthly costs. If you want to rent out the property and the bank does not agree. Then unfortunately there is no other choice to sell the house anyway. Even if there is a chance of loss. This problem is not yours alone. It is also a problem for the bank.
Solution?
Not only the mortgage lender, but also the customer has exactly the same interest in such a situation. The value of the home must be preserved. And the mortgage must remain affordable. Sometimes it is possible to come to a good solution together. More and more banks, insurers and other lenders are thinking more from the perspective of customers. Unfortunately, there is currently no simple solution available. It is important to get good information and before you start renting out the house that you know what you are getting yourself into.
At Bliss, we regularly receive questions from people who are considering keeping and renting out their current home. Usually this also involves buying a new home. This is also called leave to let. There is a lot involved, so you have to ask yourself to what extent it is an interesting option for you. We will explain more about this in another article soon.
Do you want to know more? Or discuss your options without obligation with an independent mortgage advisor? Make an appointment.
