There are lots of reasons you might be considering switching to a buy-to-let mortgage. These can include moving home and wanting to keep your existing property to let out, or remortgaging as a buy-to-let landlord.
Here we look at the most important things to bear in mind, to help you understand the process and make the best choices for your borrowing requirements!
The team at Revolution Brokers often deal with enquiries about how to switch a mortgage to a BTL, and this depends on the property, your current mortgage, the rental structure and many other factors.
As with any mortgage, we advise seeking professional advice to ensure that this long-term financial commitment is the best suited to your property, with the most competitive rates! For more detailed information and personal support, get in touch at 0330 304 3040 or firstname.lastname@example.org.
Switching to a Buy-to-let Mortgage
If you have a residential mortgage and wish to change it to a BTL mortgage, this will all depend on:
- The type of property
- Your circumstances
- The terms and conditions of your existing mortgage
You will need to contact your existing mortgage provider and must understand their terms before you decide whether to switch.
Changing a Property to BTL and Moving into Rented Accommodation
Sometimes, property owners decide to let out their home and move into rented housing. Often this is because the property size isn't compatible with their living requirements, but they do not wish to sell the residence.
This can be a tricky scenario since some lenders are reluctant to switch mortgages from residential to BTL. The reason behind this is down to risk, and what leverage the lender holds if you decide not to keep up with your mortgage repayments.
Another element to be aware of is fraud since the lender has to consider the potential that an application is changing their mortgage to BTL, but doesn't intent to rent this out and will be living in the property at the same time as earning rental income from tenants.
For a lender to consider this type of application, they will need to see what the anticipated rent will look like. Interest rates on BTL mortgages can be higher than on residential products, so knowing what income the property will generate is essential to deciding whether the lending is affordable.
Typically, a lender will need to see rental income that makes up between 125-140% of the mortgage repayment costs.
There are often new deals and products coming onto the market, so it is well worth taking the time to compare alternative lenders, and competitive rates to attract new customers to switch their mortgages. Sticking with your existing lender might seem the easiest option, but will likely cost you significantly more over time.
Buying a New Property & Switching Your Existing Home to BTL
This scenario is more common, whereby a homeowner will purchase a new residence to live in while keeping their existing property and letting it out.
There are multiple reasons homeowners decide not to dell their existing residence:
- Reduced interest rates on savings, making property investment a more profitable form of investment
- A way to save money and return a profit on the investment
- Low prices in the housing market meaning now is not a good time to sell
To make this sort of switch, you can either change to a let to buy mortgage or obtain consent to let. Let's look at those two options in more detail!
Let to Buy Mortgages for Landlords
This type of mortgage is for homeowners who buy a new home to live in and rent out their previous residence by changing their residential mortgage to a buy-to-let product.
In doing so, a remortgage on the previous property can also be a way to raise cash from the equity to provide the deposit for the new home.
A let to buy mortgage is called a second charge; you are taking out a new loan secured against the first property, to release some of the equity. This is often the best choice for an investor who needs to raise funds for the deposit on their new property and has enough equity in their first home to be able to secure lending against it.
For mortgage lenders, the most significant factor to consider is the risk. If there is a period between the homeowner moving out, and the first tenant moving in, the investor needs to be able to cover the mortgage costs in the meantime.
Applying as an experienced landlord or offering other forms of security is a way to mitigate this risk and achieve more competitive offers from mortgage lenders.
What is a Consent to Let Mortgage?
A consent to let mortgage is where your lender permits you to let out your property, without needing to switch to a different type of mortgage. Some lenders are happy to do so, whereas others are unable to consider this sort of request - but it is worth asking the question since this can make the whole process more streamlined.
If your lender is not happy to grant consent to let, then the best course of action is to remortgage through a buy-to-let product.
Using a consent to let mortgage means that you remain under the terms of your existing residential mortgage, but might have an impact on your mortgage applications for your new property.
Many lenders have a limit in place as to how many mortgages an applicant can have, so it is essential to apply to lenders who are comfortable lending to applicants with two properties. More specialist lenders can even offer lending for owners of up to four properties, provided you can demonstrate that you can afford the repayments!
Renting out a Property under a Residential Mortgage
It isn't illegal to let out a property without a buy-to-let mortgage, but this is a precarious move as you could become unstuck with your mortgage lender by breaching the terms of your lending. If you move out of your home and decide to let it out, we strongly advise that you speak to your lender and consider switching to a BTL mortgage.
Should you let out a property mortgaged as a residential premise without informing your lender, the debt may become instantly payable in full, resulting in a forced sale or even repossession.
The best course of action is to contact your mortgage lender straight away - even if you have become an 'accidental landlord'. This usually happens because a homeowner is moving home but has been unable to sell their existing property, so decides to let it out in the meantime to cover the mortgage repayments.
For help and support understanding the switching process, and what to do if you have become an accidental landlord, give us a call on 0330 304 3040.
Remortgaging a Buy-to-let Property
If you have a residential mortgage and want to remortgage as a buy-to-let, this depends on your existing lender and the terms of your contract. Many lenders will not allow you to remortgage if it is within six months of the original mortgage start date, and some have a longer time limit.
You may find that some lenders are unable to consider consent to let applications, which also takes into account how long you have owned the property.
Costs of BTL Mortgages
Usually, the fees payable for a buy-to-let mortgage are higher than those for residential mortgages. However, this depends on the lender and their calculations, as well as your circumstances and how these impact the mortgage offer.
Most BTL mortgages require a higher deposit, typically around 25%, and carry additional Stamp Duty as a second property. The interest rates payable also tend to be higher, since the risk level is more significant.
For help understanding the Stamp Duty payable, expected mortgaging fees, and typical BTL interest rates, have a look at the Revolution Finance calculators.
Expert Brokers for BTL Mortgages
When converting a residential mortgage into a BTL, you have multiple options and factors to consider to ensure the process is smooth and cost-effective.
Revolution Finance Brokers are buy-to-let mortgage experts, working with landlords from first-time investors to experienced landlords with large portfolios. We work with a network of reputed lenders offering specialist products, and negotiate the best rates and terms to match with your investment plans.
Give us a call today on 0330 304 3040 or drop us an email at email@example.com and we will get the ball rolling!