A Guide to Changing to a Buy-to-Let Mortgage
Switching from a residential mortgage to a buy-to-let mortgage typically happens when you decide to rent out the home you previously lived in.
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A buy-to-let mortgage is a mortgage you get when you want to rent out a property to tenants in order to gain an extra bit of income.
Whether you’re thinking of getting a buy-to-let mortgage for a new property or remortgaging your current home, there are a few things to keep in mind to ensure that you get the best possible deal for yourself.
How do I change my mortgage to a buy-to-let?
Switching your mortgage to a buy-to-let and how you go about doing this depends on the type of property you have, your personal financial circumstances and the terms and conditions of your original mortgage agreement. You also have to get your mortgage provider’s consent to make the switch.
Of course, as with any financial matter, it’s really important to take time to consider each eventuality and not rush into making any decisions without consulting a specialist.
Changing your main residence to buy-to-let and purchasing a new property
You have two options when it comes to changing your main residence to a buy-to-let and purchasing a new property. The first is a let-to-buy mortgage. Now is when you purchase a new property with a new residential mortgage and rent out your old property while switching your existing mortgage to a buy-to-let.
Unfortunately, some lenders are a bit cautious of let-to-buy situations as there is a risk of gaps in a tenancy which could cause issues with repayment. If you have had no previous experience as a landlord, this may become an issue.
The second option is getting consent to let. If you have a great mortgage deal that you don’t want to lose, it is worth checking with your lender if they would give permission to rent out your property under the existing mortgage. In short, this would move the debt from one place to another. Of course, there is no guarantee that your lender will accept, but it is worth checking!
Consent to let will mean that your rental property will still be on a residential mortgage. This could mean that you have fewer options when looking for a mortgage for your new property as there is usually a limit on the number of residential mortgages you can have at the same time.
Changing your main residence to a buy-to-let and moving into rented accommodation
If you’re planning to move into rented accommodation, you may discover that lenders are not as willing to switch your residential mortgage to a buy-to-let. This is because there is a risk that the borrower (you) may decide not to repay. There is also a risk of fraud, where customers request to swap to a buy-to-let and then continue to live in the property while making an income from tenants simultaneously.
In general, for a lender to approve the switch, you will be required to provide proof of your projected rental income. Even then, you may find that your interest rates increase when you swap to a buy-to-let. A lender needs to make sure that your rental income is at least 125% of the monthly mortgage repayment amount.
Securing the best deal
Obviously, the main thing for you is to secure the best possible mortgage deal. If you already have an excellent mortgage rate, your current lender may be a great option. However, it is important to speak to someone who knows the ins and outs of switching mortgages before committing. There may be a better deal out there waiting for you to claim it!
Can I rent out my property without a buy-to-let mortgage?
In general, you’re not doing anything illegal by renting out your property without a buy-to-let, but you might be breaching your contract with your lender. If you are renting out your property without switching to a buy-to-let and the lender finds out, you could risk having your property repossessed. Therefore, it’s pretty clear that you shouldn’t take that risk. It’s always better to discuss any changes with your lender as soon as possible.
Is a buy-to-let mortgage more expensive?
Typically, there are more costs associated with buy-to-let mortgages. This does however, depend on the lender and the way they calculate their mortgages. You will most probably be asked to put down a larger deposit (generally, around 25%). Stamp duty is also higher. In general, mortgage rates do tend to be higher for buy-to-let mortgages.
So there you have it! A guide to switching to a buy-to-let mortgage. No matter what you decide, it’s important to seek guidance from a professional before making any financial decisions.