Taking out a buy to let mortgage could be a good option if you’ve decided to move or have inherited a house but don’t want to sell.
It’s possible to switch from a residential to a buy to let mortgage, but there are several things to consider, such as:
- What type of mortgage do you currently have?
- What do you plan to do with the property?
- Where will you be living?
- How many other properties do you own?
In this guide, Revolution Brokers shares some industry insights to help you understand how the mortgaging process works and the questions a lender is likely to ask!
Please get in touch with us for more information about switching from a residential to buy to let mortgage or help to find a competitive borrowing product.
How to Change to a Buy to Let Mortgage
Converting a mortgage from residential to buy to let means you’ll need to do one of two things:
- Switch from your existing product to a buy to let mortgage with your current lender.
- RemortgageRefinancing an existing mortgage with a new mortgage. onto a new product with a different mortgage provider.
The right option depends on the property and with whom your residential mortgage is held. In some cases, a lender won’t consent, in which case refinancing is the only solution.
However, if you have an early repayment clause, this might be costly, so you must consult an independent broker before making any decisions.
Converting to a Buy to Let Mortgage to Move into a Rented Home
One quirk is that some lenders are reluctant to offer a buy to let mortgage if you move out of your residence and into a rented property.
While there’s every reason you might wish to live somewhere different and perhaps don’t want two mortgages, lenders sometimes see this as a higher risk.
There is also the potential for fraud, so it’s vital that if you convert to a buy to let mortgage, you don’t change your mind and live in the property yourself.
That applies even if you plan to live in a part of the home and rent out other spaces to tenants.
Affordability Assessments When Switching to Buy to Let
A mortgage provider for a buy to let property looks at affordability differently than for a residential mortgage.
Rather than your personal income, they’ll need to know the projected rent you’ll earn.
Most lenders need to see rental earnings of between 125% and 140% of the mortgage interest costs to be comfortable you can afford to keep up with the payments.
Note that buy to let mortgages are nearly always interest-only, and the interest rates are slightly higher than for residential loans.
Buying a New Property and Mortgaging Your Home as a Buy to Let
One common scenario is when a homeowner buys a new property to live in and decides to keep their existing house to rent out.
There are many reasons for this, but often it’s because a property is a valuable, long-term investment asset, and the interest rates on savings are very low.
When house prices drop, it may be that you decide not to sell but rent out a home and put it on the market at a later date when prices are more attractive.
To change your mortgage to buy to let, you’ll either need to take out a let to buyLetting out a property that the borrower previously lived in... mortgage or secure consent to letConsent from a mortgage lender to let out a property. from your existing lender.
Let to Buy UK Mortgages
Let to buy borrowing means you buy a different home to live in and have a new residential mortgage on that property.
Your old home is rented out, and you switch the mortgage on that residence to a buy to let product.
There are many options here, and you might decide to take out a buy to let loan to raise finance towards the deposit on your new property if you have sufficient equityThe difference between the value of the property and the amo....
Let to buy mortgages aren’t available from every lender because there is a potential risk if the rented property has a tenancy vacancy.
In that situation, you’d still need to cover the costs of both mortgages.
Applying for Consent to Let
A final option is to look into whether your lender will offer consent to let.
If you have a competitive deal, say a tracker mortgage with an exceptional interest rate, this might be preferable if you don’t want to end up paying a higher interest rate.
You’d need permission from your lender to let out without switching mortgages, and while they aren’t obliged to accept, it can be a convenient way forward.
The lender might not grant consent to let but could offer to port your mortgage advisors onto a buy to let product, so it’s worth inquiring before applying for any additional borrowingAdditional funds borrowed against an existing mortgage..
For more detail about any options explored here for switching a residential mortgage to buy to let, or to discuss the rates currently available, please contact the Revolution Brokers team on 0330 304 3040 or email us at [email protected].
Organisation: Revolution Finance Brokers Ltd
Date: October 27, 2021