Is it illegal to rent house with a mortgage?

If something is "illegal" then it is against the law of the land. It is not illegal to rent out a property that has a mortgage on it. And contrary to another answer, it is highly unlikely to be fraud for you to do this.

However, when you get a mortgage there will be all sorts of terms and conditions attached by the lender. If you breach those terms the penalty is usually that the lender can insist on full repayment there and then of the loan.

If you obtain a "normal" residential mortgage it will be a condition that you are living in the property as your own home, and that you cannot rent it out. But it is possible to get a buy to let mortgage that is designed for landlords who want to rent the property. The main practical difference is that the interest rates tend to be higher on these, and the criteria that the lender uses to decide whether to lend will be different (based on the expected rental income not your personal income).

Having said all the above, I wonder if you actually mean can you rent a room to a lodger? In most cases the answer will be yes, because you are still in possession, its still your main home, and a lodger has very few (if any rights) so if the lender has to repossess they can do so without problem.

It is not illegal to do so, but it will be a breach of your mortgage conditions. If found out then the property can be repossessed and bang go any chances of another mortgage for years. Also, if a tenant is evicted by the mortgage company then you may be subjected to a civil claim for illegal eviction - that can be 5-figure damages.

If you get a BTL mortgage then although you will pay more in interest (approx 2% extra) you can claim ALL the interest against rent when calculating your tax. So, if you get £15k a year rent, pay £13k a year mortgage, of which 11k is interest then you only pay tax on £4k, not £15k. That's a pretty good tax saving for being honest.

If you are going to live in the property and have lodgers - none of the above applies.

Most mortgages when you take them out specifically state and make you sign a contract that you will not rent the property out. Should you so do then the action they take depends on the mortgage company as you would be in breach of contract. At best they could charge you higher interests rates and at worse the could repossess the property and make it very difficult to get another mortgage with anyone else in the future.

The best policy is to always be honest with your mortgage provider although by all means shop around for the best deal. You need to tell them it is buy to rent and see what the best deal is

You will find that under the terms and conditions of your mortgage you are not allowed to rent the property out without the lender's consent. The lender will probably give their consent to the property being rented out, but they can then charge commercial interest rates.

It is a condition of your mortgage that you take out buildings insurance on the property - it is impossible to insure a mortgaged property without the consent of the lender. You can lie and get a policy issued, but when a claim is submitted and the details are checked, then the policy will be declared null and void due to non-disclosure. So a fire or bad flood leaves you with a building worth nothing, you have no insurance money to fix it up, and you still have to pay the mortgage!

Only a fool would take this sort of risk.

If you get permission to rent the property out, then the interest charged can be allowed against tax anyway. You can't allow the capital repayment but you can allow the interest.

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My sister had 3 buy-to-let properties until only recently. This was done after her husband went into the Church and they lived in Church properties so the equity they had on their home before that, they ploughed into the buy to lets, and the rent from the properties paid for the rest of the mortgages. I imagine the companies they took out the mortgages with were aware.

For the most part, all Mortgage Companies are interested in (no pun intended) is receiving their regular mortgage repayment monies. I'd suggest you check with any Mortgage Company you approach before you do this.

You must have what is called a buy to let mortgage or your mortgage provider might call in the loan when they find out you are renting out the property. You need to discuss the implications of renting out a property with a proper mortgage adviser.

they won't charge you extra for the mortgage, but you do have to pay for special insurance.

ask your mortgage provider, we did and they were really helpful (santander), all you do is fill a bit of paper work out and job done!

thinking about it though, we already live in the house, so I'm not sure about if your buying it just to rent it. I think you should tell them though because of the insurance you have to get

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It must be a Buy-To-Let mortgage. If you try with a standard mortgage you will risk re-possession when it comes to light. And it will come to light.

It's not illegal around here, or anywhere else as far as I know. I guess there could be something written into your mortgage contract about it. Probably well worth reading that contract, it is what matters. But generally the mortgage holder just wants their money.