Can I Change My Mortgage To Buy To Let?

Nikka Sulton

Can I Change My Mortgage To Buy To Let?

Certainly, many customers may not grasp the distinction between their residential mortgage and a Buy to Let mortgage. It’s quite usual to switch a mortgage, such as when moving in with a partner, to accommodate renting out the property.

However, this straightforward switch might not be the most financially advantageous. By opting for a mortgage change with your current lender, you could find yourself still locked into the same monthly payment. Exploring different avenues becomes crucial to optimize your financial approach.

One option to consider is seeking out a Buy to Let mortgage specifically designed for rental properties. These mortgages often come with terms more suited to the dynamics of rental income, providing you with potentially more flexible and cost-effective arrangements.

Another alternative is to consult with a mortgage advisor who can guide you through the process of assessing your current mortgage and exploring options for a more tailored solution. This approach ensures that your financial decisions align with your goals, whether you’re renting out your property or making changes due to a shift in personal circumstances.

How does it work, what’s the process?

For changes in your housing situation, consulting with a broker is advisable. If you own a property, no longer reside there, and wish to convert it into a Buy to Let, seeking advice from experts is prudent.

Brokers can elucidate the various options for altering your mortgage, outline associated costs, and assess whether you possess sufficient equity. The swiftest route often involves approaching your existing lender and requesting Consent to Let. While distinct from Buy to Let, it’s a straightforward and prevalent method. Alternatively, you can explore obtaining a Buy to Let mortgage with a new lender for a different approach.

Is it easy to change to a Buy to Let mortgage?

The process becomes straightforward once you’ve weighed the options and determined the most suitable approach. Any broker can assist if you meet the criteria, particularly if you’ve owned the property for an extended period.

For those who are just starting and lack substantial equity, the challenge might be greater. Most Buy to Let lenders typically lend up to 75% of a home’s value. If you’ve purchased it with a minimal deposit, like five or ten percent, you may not have accrued enough equity yet.

However, if you’ve owned the property for an extended period, diligently reducing the mortgage through regular payments, transitioning to a Buy to Let arrangement should be viable.

What happens if you don’t change your mortgage to a Buy to Let?

If you secure Consent to Let from your lender, it may lead to overpaying on your mortgage, a positive outcome. Residential mortgages are typically ‘repayment mortgages,’ gradually reducing the debt.

Buy to Let mortgages, however, focus less on how you’ll repay the debt, viewing the property as an investment generating rental income. Consequently, most Buy to Let mortgages operate on an interest-only basis. If your goal as a landlord is to own your home outright rather than maximize monthly income, sticking to a repayment plan may be preferable. Although current payments might seem high, the payoff comes in 20 years when the mortgage is settled, and rental income becomes pure profit.

Consider the potential risk of having two repayment mortgages, especially if your tenant fails to pay or issues arise. A broker can guide you, ensuring you’re on the most suitable mortgage type and elucidating the benefits of Buy to Let and Consent to Let.

Is Buy to Let more expensive?

Certainly, it’s typically pricier as Buy to Let mortgages carry more risk for lenders. While they are generally more expensive than standard residential rates, the affordability criteria are more lenient.

Consider a £200,000 mortgage over 25 years – on a standard plan, the monthly payment might be £700 to £800. Shifting to a Buy to Let on interest-only, with adequate equity, could cut the monthly payment by around £500, potentially with a tenant contributing £700 in rent.

This makes sense mathematically, but the key consideration is debt repayment. Without a repayment plan, the debt isn’t decreasing. A savvy landlord may accumulate rental income and manually use it to pay off the mortgage, as most lenders permit overpayments. If the goal is full ownership at the end of the mortgage, debt repayment is crucial.

However, it varies for each customer. Some prefer the extra monthly income and may not prioritize debt repayment. A mortgage advisor can discuss their future plans and tailor advice accordingly.

What is Consent to Let?

Certainly, when you initially secure a mortgage, it’s intended for residing in the property. Seeking Consent to Let involves returning to your lender for permission to lease the property, often granted for six or 12 months, aligning with potential changes in your circumstances.

Consent to Let is typically a temporary solution until your initial deal concludes. Afterward, you’ll transition to a higher standard variable rate, a situation best avoided. Consulting a broker is advised to explore alternative options and make informed decisions.

While staying on Consent to Let is permissible, consulting an expert provides clarity on its financial viability. Standard variable rates average 3.15 to 4 percent, whereas Buy to Let rates, starting at 2 percent with sufficient equity, present a compelling reason to assess your situation through expert consultation.

How soon can you remortgage to a Buy to Let?

Certainly, you can consider remortgaging from day one, though more options typically arise after six months. It’s crucial to be aware of the consequences associated with any remortgage, especially regarding fees and early repayment charges, which are common in fixed-rate mortgages.

Many residential customers opt for seeking Consent to Let during their fixed period to avoid these charges. Consulting with a broker at the end of this period allows for a smoother transition to a suitable Buy to Let investment mortgage. A broker can provide detailed explanations and help calculate potential early repayment charges, ensuring informed decision-making.

How much deposit do you need for a Buy to Let?

Buy-to-Let deposits are typically larger, requiring more than a 20% equity stake, ideally reaching 25% or more. Unlike residential mortgages with a minimum of 5%, Buy-to-Let demands a substantial deposit. If uncertain about equity or struggling with calculations, consulting a broker, experienced in property valuations, can provide clarity on your house’s value and assist in determining eligibility for the switch.

How much can I borrow with a Buy to Let mortgage?

Lenders vary in borrowing amounts based on affordability assessments or ‘stress tests.’ Residential mortgages assess income and commitments, while commercial Buy-to-Let mortgages prioritize rental income. Brokers consider your property’s rental potential and existing equity to determine borrowing capacity. To gauge rental prices accurately, consult local letting agents or your broker, ensuring informed decisions aligned with market dynamics in your area.

Will I pay Stamp Duty on a Buy to Let?

When transitioning a residence to a Buy-to-Let, potential stamp duty exemptions based on the initial purchase may apply. However, converting the property into an investment triggers different tax considerations, especially regarding Capital Gains Tax. The timing of the purchase and the shift to a Buy-to-Let status are crucial factors. Consultation with a specialized accountant or property tax expert is advisable to navigate the complexities, ensuring awareness of potential tax implications upon eventual sale or inheritance. While Stamp Duty incurs a higher rate for property-to-let acquisitions, it is a one-time payment made during the initial purchase, distinct from ongoing tax considerations.

Is it illegal to rent a house on a residential mortgage?

While not a criminal offense, letting your property without informing your lender violates your contractual agreement. Failing to disclose this information can lead to severe consequences, including the lender retracting the loan and possibly demanding repayment. Honesty is crucial in such situations. Clearly communicate your intentions and plans to your lender, seeking advice from a broker to determine if it aligns with their terms. Always prioritize transparency to avoid potential complications and adhere to contractual obligations with your lender.