Changing a Residential to a Buy to Let

Changing a Residential to a Buy to Let
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Changing a Residential to a Buy to Let

Changing a Residential to a Buy to Let
Changing a Residential to a Buy to Let

Andy Done joins us to talk all about Changing a Residential Mortgage to a Buy to Let

Whether you’re buying for the first time, moving, investing or remortgaging we’ve got it all covered.

Listen to the latest podcast below to find out more!

Can I switch my residential mortgage to a Buy to Let?

Yes, you can. There are a number of reasons why you might want to switch a residential mortgage to a Buy to Let. This could be if you decide that you want to buy a new house but you want to keep your existing property and rent it out. Or if you were going to move away from the area due to a new job or or due to travel you can switch it to a Buy to Let mortgage and rent the property out.

There are a few things to consider before deciding on whether to switch the mortgage over, such as whether your existing lender would give you permission to let your property.

How does the process work?

It’s very similar to a residential Remortgage, except there are a few differences. You typically remortgage onto a new product, with a new lender. The mortgage company will instruct a valuation to make sure the property is in a lettable condition, and the valuer will decide how much rental income they think is achievable.

The rental figures are then used to determine how much you can borrow, and the mortgage is underwritten. When they’re happy with everything, they’ll issue you with a mortgage offer and the solicitors will request the funds and transfer them to your existing mortgage company. It’s quite easy to change to a Buy to Let mortgage.

What would happen then if you don’t change your mortgage to a Buy to Let?

If you rent out your property without getting permission from the lender, it’s actually classed as mortgage fraud. If the lender becomes aware that you’re doing this, you can end up in trouble, so I always advise my clients to contact their mortgage lender and ask for Consent to Let if they decide they’re going to rent their property out, before switching over to a Buy to Let mortgage. Your lender might increase your mortgage rate and in some situations you may even be asked to pay off the entire mortgage, if you fail to notify them.

Is a Buy to Let mortgage more expensive?

A Buy to Let mortgage can be more expensive than a residential mortgage. They may have higher interest rates. Historically, they’ve also had higher valuation fees and legal fees when compared to a residential product. However, there’s a lot of competition in the marketplace between Buy to Let lenders at the moment, and the rates are extremely competitive.

There are many products available which offer free valuation and free legal services. Some lenders who don’t offer the free legal services, offer cash back which is paid on completion, and can be used to cover the legal fees. Another thing to consider is that a Buy to Let mortgage can be set up on an Interest-only basis, so the monthly payments can be slightly lower than a residential mortgage on a repayment basis.

What is Consent to Let?

Consent to Let is where you ask permission from your lender to let out your home. Normally you’d ask for between a period of six to twelve months or until the end of your current product, but it can be for longer. You don’t need to Remortgage with Consent to Let, you stay on the same product with the same lender, although your lender may introduce some new terms and conditions such as increasing the interest rate on the mortgage.

If you have a Fixed-rate mortgage, getting Consent to Let can be a good way to avoid any repayment charges and if you’re moving away for a while, but you plan on returning to the property, it allows you to do this. Lenders tend to be quite flexible with giving Consent to Let and understand that your circumstances in life can change.

There’s a few reasons why they might not give you Consent to Let and that could be, if you’ve got a history of having mortgage arrears, or if you ask them within six months of setting up the mortgage. If your lender doesn’t grant you Consent to Let then the other option could be that you actually Remortgage to a Buy to Let product.

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​We are always happy to hear from new clients, so please get in contact today to discuss your mortgage options.

How quickly can you get Consent to Let?

Depending on which lender you’re with, you can get Consent to Let pretty quickly. Usually you contact them and explain why you’ve had a change in circumstances, and they can give you Consent to Let within a few days. You will likely have to pay an administration fee for this.

How soon can you Remortgage to a Buy to Let?

You can do that almost straight away. The process of a Buy to Let Remortgage, on average, takes between four and six weeks to complete.

How much deposit do you need for a Buy to Let and and how much can I borrow?

The minimum deposit for a Buy to Let is typically 25%. There are a few lenders who will allow a smaller deposit of maybe 20%, but the interest rates on these products are less competitive.

The affordability for a Buy to Let mortgage is not normally calculated using your personal income, although some lenders do have a minimum income requirement. Most lenders want the rental income to be a certain percentage of the monthly Interest-only mortgage payments. They use a stress test, which is dependent on your gross personal income and how long the product is fixed for.

What costs are involved with this process?

When you Remortgage to a Buy to Let product there can be costs involved. Some lenders charge an application fee, some charge evaluation fees, but there are a lot more lenders these days offering free valuations. You may have to pay a solicitor to complete the Remortgage legal work, although a lot of lenders now offer free legal services or even cash back which can be used towards these costs.

There’s potentially the additional cost to consider when letting out your property, such as letting agent fees, landlords insurance, repairs and renovations and tax on the rental income. You don’t normally have to pay additional stamp duty if you’re Remortgaging.

How can a Mortgage Broker help in this instance?

A mortgage broker can help by looking at your current situation to see if you’ve got any early repayment charges applicable on your current mortgage. They can also look at what your future plans are and advise you on the most suitable way forward.

We can also compare all the different options available and find the most suitable products for you. We’ll explain how the process works, complete all the paperwork for you and submit the mortgage application, as well as helping to fill in the solicitor’s paperwork.

In the future we can then review your circumstances, so if you decide that you want to change what you’re doing or sell the property, we can make sure that you always get the most suitable advice and are always on the most competitive mortgage product.

Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.