If you’ve been thinking about moving house but want to retain your current residential property it is possible to change your residential mortgage to a buy-to-let mortgage, under the right scenario.
It’s a common question we’re asked at the Online Mortgage Guru.
How easy it is will depend entirely on several factors which we aim to cover in this article.
What circumstance would I be granted to change my residential mortgage to a buy-to-let mortgage?
There are a number of valid reasons people want to let out their current residential property, whether it’s:
- Moving into a new property with a partner
- Moving due to work commitments
- Moving away from home for a certain amount of time
- Wanting to purchase a new home
In all of these scenarios, it may be that it makes sense to let out your property rather than sell.
How do I change my residential mortgage to a buy-to-let?
Changing your mortgage to a buy-to-let mortgage will very much depend on your mortgage provider as they will need to approve your request.
If you’re wondering ‘how easy is it to change from a residential mortgage to a buy to let’, as always there are other factors that will be taken into consideration. Typically, switching mortgages depends on the below:
- Current mortgage type
- Intentions for the property
- Future living arrangement plans
- Any other mortgages you have
- The terms and conditions within your current mortgage
- Lender consent
What will also be considered is whether you will be moving into a rented property or a new property.
Why is there a difference?
Some lenders can be reluctant to change a mortgage from a residential to a buy-to-let one if you are planning to move into rented accommodation. This is because the risks to the lender are greater if the borrower decides not to repay. They are also concerned whether any potential fraud can be committed, i.e. you intend on living in the property yourself while earning an income from tenants.
The more straightforward and common of circumstances is generally to convert your property and buy a new one.
If you intended to change your current residence into a buy-to-let you will be subject to assessment from lenders. They will look for proof of your projected income which will be stress-tested at a rate of 125-145% of your repayments as a minimum.
There are options open to you for converting a residential mortgage which you’ll need to understand first. Primarily your options are consent to let or buy to let.
Do I need consent to let or a buy to let mortgage?
When we’re looking at if you can change your property to a buy-to-let mortgage this will very much depend on your circumstances. Do you want to purchase a new residential property but retain your existing one to rent out whilst still releasing funds from it? A let to buy may be suitable or even remortgage. You may have even paid over the odds for your existing home and it’s not worth selling right now, in which case you could hold the property and switch to a buy to let until it’s value increases.
To put it in perspective for you we’ve broken down the possible and most common options:
Consent to let
Getting consent to let your property from your lender is the most important thing you need to do. Residential mortgages are fully regulated by the Financial Conduct Authority so you can’t let out a residential property without permission otherwise you risk breaching your terms and conditions.
If you have a good mortgage deal in place already then getting consent rather than switching or remortgaging may be an option. It would mean that your mortgage is still a residential one but that you have consent to rent your property out.
If you were given consent your lender will most likely place time restrictions on how long you can rent out the property, usually between 6-12 months. This would be a good option if you weren’t letting the property out indefinitely, for example, if you were going travelling for 6 months.
However, lenders do not have to do this and they are not obliged to accept your proposal especially if:
- The period you want to rent out the property is too long
- Expected monthly income isn’t within their threshold
- You have a history of mortgage arrears
- They aren’t satisfied that your intentions have come about through a genuine change of circumstance
Buy to let
If you are not eligible for consent to let another option is to switch or remortgage onto a buy to let mortgage, in which case your application will need to comply with a different set of criteria from a residential mortgage as we touched on above.
If you’re planning on buying a new residence and want to release funds from your current residence to do so it’s common to apply for let to buy to switch your current residential mortgage to a buy to let.
Again, your current lender doesn’t have to consent, in which case remortgaging with a new lender may be an option. In this circumstance, being aware of any potential penalties you may incur on your mortgage will be paramount.
It’s important to know that changing a residential mortgage to a buy to let isn’t the same as a normal residential mortgage whether you opt for consent to let or remortgage to buy to let:
- You don’t remortgage at all with consent to let. You’ll stay with the same product and lender but you may be under a new set of terms and conditions.
- Buy to let mortgages involve new assessments and have a different method of assessing your affordability.
Is it illegal to rent out a property without a buy-to-let mortgage?
Whilst it’s not illegal to let out your property under a residential mortgage you could be in breach of your contract with your mortgage lender. Without consent to let or a buy-to-let mortgage from your lender, they could potentially demand the whole mortgage amount instantly.
You should always talk to your lender before you start renting out your property even if you become an ‘accidental landlord’.
Speak to a professional
As this is a big financial commitment switching mortgages from a residential to a buy-to-let takes careful consideration. Talking to an appropriate advisor can be key to making final decisions.
Mortgage advisors help borrowers understand their options and will also match them to lenders based on their personal circumstances. They will also give you access to the best rates on the market you are eligible for, you won’t just be shown your current lenders rates. A whole of market broker will furthermore have access to high street lenders right through to specialist lenders. Ultimately they will help you understand if and how you can change your property to a buy-to-let mortgage.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via email@example.com and we will put you in touch with a suitable specialist to handle your enquiry.