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Converting Residential Mortgage to Buy To Let
There may be a number of reasons why someone would want to change their residential mortgage to a buy to let and it is a common process. It is important to understand when you need a buy to let mortgage as residential mortgages are regulated by the Financial Conduct Authority (FCA) but buy to let mortgages are not.
Letting a property out when it is on a residential mortgage is breaching the terms of the mortgage and could have severe consequences such as the lender demanding for immediate full repayment of the mortgage loan or charges and higher rates or possibly blacklisting your name.
If you currently have a residential mortgage, this article provides you with options so you can be worry free.
What are your options if you wish to let the property out?
If you already have a residential mortgage and wish to let the property out, you have a couple of options and which option to go for will depend on your intentions with the property:
• reach out to your current lender for consent to let.
• apply for a new buy to let mortgage.
Consent to let
Some people may find themselves in situations where they need to live elsewhere for a short interim but don’t wish to sell their property and intend to move back in the future. This could arise if someone needs to move short term for work or wish to go travelling.
Obtaining consent to let from your current lender provides you with permission to let your property out for a limited time without breaching the terms of your mortgage. You are not required to switch mortgage products, but your lender may decide to introduce additional terms and conditions.
Your lender could refuse your request for consent to let. This could be for a number of reasons such as the length of time required is too long, projected monthly rental income is too low or you have mortgage payment arrears. If you have been refused by your lender then your other option would be to get a buy to let mortgage.
If you are granted consent to let, then you should be able to let the property as you wish although there may be restrictions on the tenancy lengths. Some lenders may charge an administration fee or change your interest rate.
Convert your mortgage to a buy to let
You will need to remortgage your residential mortgage to a buy to let mortgage if you wish to let out your property for more permanent reasons, such as wanting to purchase a new home to live in, moving in with a partner or you have an empty property. You may decide to purchase a new home but keep your existing property and rent it out for additional rental income to cover the mortgage and keep the property as an investment. It is important to note that there will be additional costs to owning more than one property such as a stamp duty surcharge when purchasing your new home and more added responsibilities as a landlord.
You can approach your current lender with your intentions to switch to a buy to let product and see what deals they can offer you. In some cases, your current lender may refuse, and this is because the lender will make a judgement on how risky the change is for their loan. They take into consideration scenarios such as if you have a tenant who stops paying rent then are you able to still take care of the mortgage payments. If your current lender refuses, then you can approach a mortgage broker who can help you find a new lender and the best rate possible.
Interest rates charged by lenders for buy to let could be potentially higher than residential mortgage rates, especially if your loan to value ratio is high. Lenders assess buy to let mortgages differently from the way they assess an application for a residential mortgage. Affordability is calculated from your income and your outgoings with a residential mortgage but buy to let considers the rental yield of letting out the property and the loan to value ratio and a stress test is carried out.
If you own a property with a residential mortgage, the terms of your mortgage may prohibit you from letting your property out without the lender’s permission and ignoring this could be classed as mortgage fraud. Talking to a broker with experience in buy to let mortgages could help you to navigate to the right deal and find you a competitive rate for a product that it suitable for you.