Taking in Lodgers on a Residential Mortgage (HMO License)

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    I have a question about taking in lodgers on a residential mortgage. I hope that the answer can help others too! Thank you very much in advance to anyone if you can help me!

    Before taking out my mortgage, I called the company asking if lodgers were permitted, they said they were as long as it was on a handshake agreement without contracts.

    As taking in lodgers would make my home occupied by 5 people, I proceeded to apply for a property license with the council and wrote to the bank to notify them and confirm that all lodgers would be on a handshake agreement.

    They have told me that by applying for the license I am breaching the terms of my mortgage.

    They reference a line in the general terms that states: “You must not let out or license any part of the Property unless we have given our prior consent in writing…”. I had understood this term to mean: “you must not provide anyone with a license to occupy your property”, rather than applying for a property license to the council. This was for the reasons below:

    1.) The clause states that I must not perform the licensing. This is only ever possible with a license to occupy. With a property license, I can only apply for a license – it would be the council that performs the licensing.

    2.) As providing somebody a license to occupy is similar to letting and is used here after “let out or”, I had believed the company was stating this meaning of the word to cover all the different methods of renting out rooms.

    3.) Disallowing me from providing a license to occupy makes sense with the phone conversations referenced earlier, as this would be a form of contract.

    I have spoken to the financial conduct authority, and they state that the bank is free to write their own terms on this subject, but the terms must be communicated to the customer fairly, clearly and in a way that is not misleading.

    For the reasons above, including the phone call that lodgers were allowed, and the ambiguous use of license, I believe that the terms were not made clear to me. Therefore I wish to continue with my application and take the issue up as a formal complaint with the company and if the issue persists bring it to the ombudsman. As I want an amicable solution I was also thinking of offering them additional solutions. In addition to allowing me to apply for the license and let rooms on a handshake agreement, I would also offer them to either allow me to let rooms in my house under an Assured Shorthand tenancy or allow me to repay the loan and get a mortgage with another bank if they waive the early repayment charge.

    Does my argument sound reasonable to you at all? I would really appreciate your advice, as if I am definitely in the wrong here and I don’t see it, I would really like to know before going too far down the process. I don’t want to fight where there is no need, and if I was simply too thick to understand the terms and they were clear, I appreciate that I need to concede and cancel my application with the council.

    Many thanks in advance for your advice!


    smile please

    I think you need to look at what the issue is here, basically you are turning your RESIDENTIAL home into an HMO and i assume you have a residential mortgage.

    A bank cant stop you taking in a lodger that would be far too prohibitive. However you are now looking at a long term rental of rooms for financial gain. That is not the agreement you had when you took out your mortgage and because of that the risk of their loan is greater.

    There are various reasons why the bank will not allow this and ultimately it centers around  security of their loan.

    Its good you are looking to do it legally and obtain the license – Many would not for the issues you are currently facing.

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