Yes, you can get a mortgage on a property with a sitting tenant, but it’s normally only possible through a buy-to-let mortgage and can be more difficult to secure.
Buying a property is rarely simple, but add a sitting tenant into the mix and things can get a little more complicated.
Whether you’re a first-time landlord or a seasoned a property investor, you may have come across properties that have a “tenant in situ”. But what does that mean? And more importantly, can you get a mortgage on one?
If you’re looking to get a mortgage on a property with a sitting tenant but are struggling to do so, get in touch with the team at Swift Capital today at enquiries@swiftcapital.co.uk to find out how we can help.
What Is A Sitting Tenant?
A sitting tenant, also known as a tenant in situ, is a renter who lives in a property when it changes ownership. If a property you buy has a sitting tenant, you’re not just buying the home, you’re also becoming their landlord from the moment the sale completes.
With this, you inherit the previous tenancy agreement and all the rights and responsibilities that come with it.
Can You Get A Mortgage On A Property With A Sitting Tenant?
Yes, but not a standard residential mortgage. Because the property is being rented from the get-go, you’ll need a buy-to-let mortgage. These mortgages exist for properties that are being rented out to tenants.
Why? Well, lenders tend to see these properties as riskier investments for a number of reasons.
For example, having a sitting tenant means the buyer can’t move in, make changes, or increase the rent when they want to. All of these conditions, which the buyer has no control over, mean that mortgage companies see it as higher risk.
Because of this higher risk, lenders will usually ask for:
- A larger deposit (often 25% upwards)
- A full review of the tenancy agreement to understand the conditions that govern it
- Proof of rent payment history to see if the tenant is financially reliable
- An independent valuation, which may be lower due to the existing tenant (sometimes by up to 40% depending on the type of tenancy agreement they are under.)
- Evidence the tenant isn’t in arrears
However, getting a buy-to-let mortgage is definitely possible on a property with a sitting tenant; it might just mean different terms.
Why The Tenancy Type Makes A Difference When Getting A Mortgage On A Property With A Sitting Tenant
It’s important to understand that not all sitting tenants are treated the same. If the tenant is on an Assured Shorthold Tenancy (AST) (the most common post-1997 tenancy type), then most lenders will be relatively comfortable. This is because under ASTs, landlords can relatively easily evict tenants after a certain period, increase the rent at levels they want, and terminate the agreement if rent isn’t paid.
However, if the tenant has a regulated tenancy or one that started before 1989, this can be a red flag.
Why? Well, these older agreements usually come with a lot of extra tenant protections, including the tenant’s right to remain indefinitely (ie. not be evicted easily) and limitations on how much rent the landlord can charge. In fact, regulated tenants are able to pay below-market “fair rent”, making it nearly impossible for a new owner to evict or raise the rent.
Because of this high lack of control, they are seen as incredibly risky investments, especially in the eyes of lenders.
Before buying a property with a tenant in situ, always check:
- The start date of the tenancy
- Whether it’s fixed-term or rolling (ongoing)
- If it’s a protected or regulated tenancy
What Are The Risks For Buyers Of Homes With Tenants in Situ?
Buying a property with a tenant in situ can be a great way to generate rental income from day one, but it isn’t without its risks.
Here are some of the pros and cons that you need to understand before buying.
Pros:
- Instant rental income – no void period or letting process, just rent payments from day 1.
- Cheaper property price – often below market value, which might mean landlords get a better deal.
- Known tenant history – easier to predict if a tenant is going to pay and treat the property with respect.
Cons:
- Less mortgage options – not all lenders will touch it, especially if it’s a protected tenancy.
- Less flexibility – you can’t move in or evict easily, however this largely depends on the tenancy agreement.
- Property is less valuable – reselling at a profit becomes harder as these properties are valued 20-40% lower with a tenant in situ.
What Are The Legal Responsibilities Of Buying a Property With A Sitting Tenant
When you buy a property with a sitting tenant, you become their landlord straight away. That means you’ll have to legally protect yourself too, making sure you are compliant with UK rental laws. You’ll need to:
- Protect the tenant’s deposit in a government-approved scheme.
- Serve a Section 48 notice so that the tenant knows where to send notices and legal documents.
- Make sure the property has a:
- Valid EPC
- Gas safety certificate
- Electrical safety certificate (EICR)
- Fire alarms and smoke detectors
- Provide the How to Rent guide to the tenant.
You’ll also need make sure you keep the property in a safe, habitable condition – especially if issues like damp or mould are brought to your attention.
Can You Increase The Rent Easily If You Have A Sitting Tenant?
Yes you can, but you have to stick to certain rules.
If the tenant is partway through a fixed-term AST agreement, you can’t increase the rent unless the contract has a review clause. For rolling tenancies, you can use a Section 13 notice to propose a fair increase, usually with at least one month’s notice.
If the clause isn’t there, you might have to wait until the fixed term is over to re-negotiate terms.
For regulated tenancies, the rules are slightly more complex, as you’ll need to prove that the increase is lower than ‘fair market price’ – making it harder to bump up the price.
Can You Evict A Sitting Tenant?
Yes, but there are legal processes you have to follow. You can’t just evict someone because you’re the new owner. You’ll need to serve either a:
- Section 21 (no-fault eviction) – giving the tenant at least 2 months’ notice as long as the fixed term is over.
- Section 8 – used if the tenant has breached the tenancy (e.g. rent arrears or damage). However, this usually requires a court order to get the tenant out.
If the tenant has a regulated tenancy, eviction is even more complicated, so it’s worth speaking to a professional to understand your options in this case.
Why Are Properties With Sitting Tenants Cheaper?
Properties with tenants in situ are normally below market value, because:
- The buyer pool is smaller (just landlords or investors).
- You can’t redevelop or live in the property straight away.
- There’s a perceived risk around the tenancy as the buyer didn’t negotiate or set the terms themselves.
However, for landlords that are looking for a reliable rental yield and stable income, a property with a sitting tenant (as long as they are under an AST) can be a good investment, especially if the rent is set at the right level and the tenant is low-maintenance.
Can You Sell A Property With A Sitting Tenant?
You can, but it tends to be a little more tricky.
This is because most properties with sitting tenants come with pre-agreed tenancy agreements, that the new landlord may not have agreed to.
The buyer pool for this kind of property is also smaller, driving down demand and therefore the price.
If you are thinking about buying a property with a sitting tenant just make sure to:
- Give tenants at least 24 hours’ notice for any viewings.
- Inform the tenant of the sale and reassure them their tenancy remains valid.
- Update the tenant on new contact details and proof that their deposit is protected.
- Have the tenancy agreement ready for the new buyer to review.
If you’re looking to sell a property with a sitting tenant but are struggling to do so, get in touch with the team at Swift Capital today at enquiries@swiftcapital.co.uk to find out how we can help.
Is Buying A Property With A Sitting Tenant Right For You?
If you’re an investor looking for a reliable rental income, and you’re comfortable with the tenancy agreement in place, buying a property with a sitting tenant can be a smart move.
But approach with caution, as you will need extra due diligence to make sure you know what you’re getting yourself in for.
If you’re looking to get a mortgage on a property with a sitting tenant but are struggling to do so, get in touch with the team at Swift Capital today at enquiries@swiftcapital.co.uk to find out how we can help.