I believe that when you buy a property with a loan, most banks stipulates that you can’t rent it to someone else.
I have never bought one so I’m not talking from experience, it’s just based on what I’ve read online.
I can understand that if it’s the contract, you can’t do it and that’s it, live with it.
However, I’m wondering about the logic behind that.
If I understand correctly, you can renegotiate to change the loan to a loan for investment property and that would change the interest rate.
But why would the bank care that you are renting your house, as long as you’re paying back your loan in time?
Why would they require you to switch to an investment loan?
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Tax implications most likely.
The home loan rate is very low with the intention that it is used to help people obtain a necessity, not to make a huge profit.
The bank is taking a financial hit by offering low rates for homes, so I think it’s fair that they stipulate it is for your own use and not for making money.
Interest rates and taxes are not the same if the owner lives in the property or if it’s rented. That’s why it matter.
Most people buy property via a Flat35 loan. This kind of loan offers a very low interest rate, with the condition that you’re using it to buy your primary residence. That’s the reason why you can’t rent it out.
Nothing stops you from buying property to rent to third parties using a different kind of loan. However, the interest rate would be much higher, and it’s up to the financial entity to look at your proposal and either grant or deny the loan.
You can buy with cash like in full. Then you can rent your house to someone.
The risk of you not being able to repay a loan for your own home is lower than one you’re renting out. As the risk is lower, the banks are willing to give you a lower interest rate.
It is common in most countries.
One is that it is a highwr risk for the bank. Everyone has to live somewhere so there is a lower risk for a primary home. You are incentivised to pay your mortgage as you lose both the house and the roof over your head.
For investment properties it is usually a second loan (already higher risk) and subject to vacancies. And if you lose your job or ability to pay, you are more than likely to fault on your primary home last and investment properties first.
Lastly (in many countries) loans are collateralized and investment properties are collateralized separately in higher risk/return buckets (one is because governments dont buy or insure those collateralizations.
Because the risk profiles for primary residence home loans and investment mortgages are different.
There are often government subsidies etc. to help people buy homes to live in. Obviously if you shouldn’t be able to get help with a loan like that if you’re just using it to rent the place instead.
I’d assume renter rights are an issue too. Like if you default on the mortgage I’d assume it’s harder for them to reposess the home if there’s somebody renting it than if it was the owner living there.
It is possible though. The place I’m currently renting is on a mortgage. I know because the agency got me to sign some extra paperwork to acknowledge that. Probably just have to specifically ask for that when getting the loan, and pay higher rates.
If only we had this in Canada. Instead, everyone became a landlord and messed up the country.
Profiting off improperly zoned housing and using sublets / Airbnb ruins communities. Canada is going through an incredible housing crisis due to greedy land lords and massive immigration numbers.
Anyways I don’t have a good response to your post other than I believe that renting residential zoned properties for profit ruins communities.
that’s pretty crazy, because even if you don’t have a loan you can’t rent out your house well that’s what my wife tells me as we have bought our house outright. does anyone know the reasons for this aswell?
Then you should ask why banks not giving low interest rate as your home loan to other business?
When you are generating revenue from the loan then why would someone giving you very low interest rate?
Because it’s a loan, literally and legally, the house is not yours until you finish your payment.
Why would the bank care ? Why wouldn’t they ? You lending property means you’re making money OFF THEIR money, why wouldn’t they want MORE of the profit you’re making WITH their money ?
Maybe something to do with risk?
i.e. you probably don’t want to burn your own home down, but tenants are not quite as invested in the well-being of your I mean your bank’s property.
There might be somewhere where you can compare mortgage rates and insurance premiums for properties that are being bought to let; they’re probably a little higher. They might even be a little lower, if the landlord is a solid bank customer with hundreds of other properties.
They want people who own a single home for their family, not speculators and investors who probably already have 10 other home loans. It’s much less risk for them.
Cynical take: the low interest rate for new homes (to live in) is probably just to keep the construction industry (for new single family homes) going. I doubt Kishida, Suga before him, and Abe before him etc. *actually* care about the average citizen.
Wouldn’t be surprised if a lot of people in government/civil service either have business ties to the construction industry or their political parties are being ~~paid~~ lobbied ~~handsomely~~ heavily by the construction industry.