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Converting a Residential Mortgage to Buy to Let


What Is a Buy to Let Mortgage? 

Unlike a typical residential mortgage, the buy to let mortgage is intended for owners that wish to let out their property. This means that the party that takes out the loan does not intend to reside with the property and will market the accommodation to renters. This is important to note as for those that are making the jump from a residential mortgage to a buy to le will need to understand the key distinctions between the two loans.  

Can You Change From a Regular Mortgage to Buy to Let? 

One of the immediately noticeable ways in which a buy to let mortgage works differently that a residential plan is the deposit the owner is required to place on the property. Whereas with a residential mortgage some lenders typically require only 10% of the property’s value in advance, when renting the property mortgage providers will often demand upwards of 20%. 

This deposit will largely determine the value of the buy to let mortgage as the lender will use this to calculate the maximum loan to value (LTV) percentage. In the majority of instances, this is set at around 75%, meaning that the mortgage will cover 75% of the property’s value.  

When moving from a residential to a buy to let mortgage providers will evaluate the level of equity an owner has in their current property and use this to determine the LTV.  

As buy to let mortgages are considered to be a more significant risk for lenders, mortgage providers will often be far more stringent in their affordability checks before approving the loan.  Owners will need to understand the rental income they intend to gain from the property, with this amount needing to sufficiently pass the lender’s stress tests. This will demand that the rental income is at least 145% of the monthly mortgage payments, allowing the landlord to comfortably cover the interest-only payments.  

What Happens if You Don’t Change Your Mortgage to Buy to Let?

If an owner makes the decision to let their property to tenants without first informing their mortgage provider they would be considered in serious breach of the terms of their residential mortgage.  

This is because residential mortgages are a product regulated by the Financial Conduct Authority, whereas buy to let mortgages are not. Property owners that are found to be in breach of their residential mortgage may be forced to pay off their residential mortgage in its entirety, alongside facing great difficulty obtaining another loan for any future properties.  

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It is essential for owners to note that obtaining consent to let from the provider of their residential mortgage does not require them to take out a buy to let mortgage in order to market the opportunity to tenants; however, it is not uncommon for mortgage providers to introduce new terms to the residential mortgage whilst the property is being let.  Such agreements typically only permit the owner to rent out the property to tenants for a short period of time, with more substantial periods requiring a change from a residential mortgage to a buy to let.

Do I Need a Solicitor to Change My Mortgage to Buy to Let? 

In most cases, landlords will only require the consent of their current mortgage provider in order to make the switch to a buy to let mortgage. However, if the owners of the property decide to re-mortgage with another lender, then they will need to adopt the services of a solicitor to handle the transfer of the deeds for the property.  

Do You Pay More for a Buy to Let Mortgage?

It goes without saying that the rate landlords are offered on their buy to let mortgage will vary between providers. However, it is worth noting that in some cases as buy to let mortgages require the interest to be settled by the landlord each month meaning that some owners could find themselves paying less than their residential mortgage. With this being said it is likely that owners will find the overall cost of establishing a buy to let mortgage higher than their residential counterparts.  

When Should I Tell My Lender I’m Renting the Property Out? 

You should let your lender know your residential mortgage will no longer be valid the minute you decide to let the property out. That way you can arrange for a buy to let mortgage to be in place when your first tenant moves in. That way you won’t be breaking any laws, your property will be protected and you should be able to sleep easier at night. 

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