Help! I’m shopping for my first dwelling however my tenancy would not finish for 3 months

I’m in the process of buying my first home. I only started doing viewings a couple of months ago, but I found the right place quicker than expected and I’m set to complete in about a month.

My problem is that I am currently renting, and my tenancy doesn’t finish for another four months.

My landlord isn’t willing to end the contract early, so I face having to pay both rent and the mortgage for three months. Given all the other costs I’m facing at the moment, it is going to be a big financial stretch.

As I see it, my only option is to rent out the new property for the three months between completion and me moving in. I can’t sub-let my rented home as the lease doesn’t allow it.

I live in a popular tourist city and will probably rent it out on Airbnb. It seems less risky than taking on a tenant and giving them a contract.

Is this going to cause any problems with my new mortgage, and do I have to tell the lender if I won’t be moving in straight away?

SCROLL DOWN TO FIND OUT HOW TO ASK DAVID YOUR MORTGAGE QUESTION 

David Hollingworth replies: Congratulations on finding your first home and taking the first step onto the property ladder. 

That will no doubt be throwing up significant expense as you juggle the deposit requirement along with all the other costs of buying, including fees such as survey fees and legal costs. 

Hopefully you will avoid stamp duty due to first-time buyer relief, which continues in its current format until the end of March.

Expensive overlap

Being able to time a purchase to the exact point when you move out of your rented accommodation is clearly not easy. 

Much will depend on the timing requirements of your chain and although it’s preferable to negotiate a timeline that will suit all, your seller and those further up the chain may not wish to wait for your tenancy to reach its end. 

Your ability to move quickly may have been part of the reason your offer was preferred and from your perspective trying to hold off 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 will move back with friends and family to avoid signing up to a new tenancy but that may not always be an option.

It sounds like you have already attempted to reach a compromise with your landlord and meeting each other half way could have saved you the concern of affording both properties for the full three months and still given enough time for your landlord to find an alternative tenant.

As you point out, the tenancy agreement will prohibit the subletting of the property. 

In any case that could open you up to the risk of the tenant not paying or treating the property badly, which could jeopardise your deposit.

Mortgages have rules on renting  

A standard mortgage is designed to provide finance for the purchase of a home that you will live in. 

The mortgage provider for your new home will therefore expect you to be living in the property as owner occupier and letting it will be in breach of the mortgage terms and conditions.

It’s possible to request a lender’s consent to let the property but they are under no obligation to agree. 

If it was a case of a change of circumstances and a need to live and work away for a period then it would be more likely that a lender may agree, as opposed to being asked for their agreement from day one. 

Even if they did agree the lender could charge a fee, a higher interest rate or both.

A standard assured shorthold tenancy agreement would typically last for a minimum of six months which would clearly cause you another headache by overlapping the end of your current rental agreement.

Could you take in a lodger? 

Taking a lodger at your new home could be a way to help you cover the cost of the rent on top of the mortgage and take some of the strain away for the first three months. 

Lenders will generally be relaxed with a lodger living in the property as you will also be present.

They will typically want the lodger to be aware that there’s a mortgage in place to acknowledge that they wouldn’t have residency rights if the lender had to repossess. 

There’s also a rent a room allowance that enables up to £7,500 to be earned tax free.

Airbnb could work as a platform to let a spare room on a short-term basis and being in a tourist town that may help you to generate an above average income. 

Letting the whole property on Airbnb could be more problematic, as a series of short term lets doesn’t fit well with lenders’ need for consent to let.

However, there are some lenders that are now building in flexibility to their mortgages to give owners the ability to let their home on Airbnb. There will usually be some restrictions applied on how long. 

For example, Barclays will allow Airbnb lets under license (not a tenancy agreement) for up to 90 days per annum if they are for no longer than 30 consecutive days.

Other lenders including Metro Bank, Nationwide and Natwest have some flexibility too, but you should explore your lender’s approach. 

If you are able to let the new home you should also make sure that your insurance will remain valid.