Changing a Residential Mortgage to a Buy to Let
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Changing a Residential Mortgage to a Buy to Let
Stephen Hargreaves from Mortgage Co answers your questions on changing a Residential Mortgage to a Buy to Let.
Can I switch my Residential Mortgage to a Buy to Let?
Yes, and there are a couple of ways of doing it. You can apply to your existing lender for a Consent to Let. This is not a Buy to Let mortgage, it’s simply the lender giving you permission to let the property out. The alternative option is to go to another lender and Remortgage onto a Buy to Let mortgage.
Both options are relatively simple, however, the Consent to Let is a little bit easier because there are no solicitors involved. The permission tends to be for a limited period with a Consent to Let, so the lender isn’t giving you unlimited time to let the property out. Some lenders will also charge an extra interest rate or administration costs, so a cheaper, more permanent option in many cases could be to remortgage.
For some people it is considerably more beneficial to remortgage their existing property to a Buy to Let product, especially where the intention is to keep that property long-term. The interest rate is often cheaper and it’s a permanent situation. A Consent to Let is a slightly easier and quicker procedure and gives the client that flexibility to sell the house after a short period of letting, if that’s their plan.
What happens if you don’t change your mortgage to a Buy to Let?
It could be very serious, as when you sign up for a Residential Mortgage, the terms and conditions usually state that you can’t rent it out without permission. If you therefore rent it out whilst you still have a Residential mortgage, you are in breach of that lender’s mortgage contract. In a worst case scenario, that property could be repossessed.
It could also be an issue with buildings insurance because if the insurance is for a residential product, you risk the potential that they will not pay out any claims whilst the tenant is in the property.You really do need a Buy to Let mortgage if the specific purpose of the property is to let it out.
Is a Buy to Let more expensive?
In many cases Buy to Let products are no more expensive than the Residential products. There isn’t the significant difference in interest rates that there once was and prices are now very comparable.
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Do I need to tell my Mortgage Lender if I let my property?
Absolutely, because you could be in breach of your mortgage contract, and therefore you’re putting yourself in a situation where your home could be at risk. In a lot of cases consent to let can be given fairly quickly and fairly cost effectively.
How soon can you Remortgage to a Buy to Let?
If you’ve bought a residential property, there’s a good chance that you may have a Fixed-rate, Discounted-rate or Tracker-rate mortgage, which means there will be penalties as much as 5-6% to Remortgage, so you would have to factor them into your calculations.
Where the penalties are particularly high, it may be more beneficial not to remortgage, but to Consent to Let, even where the interest rate is a little bit more expensive. It’s therefore important to talk to a Mortgage Broker, who will be able to advise you what the best option is based on your circumstances.
How much deposit do you need for a Buy to Let and and how much can I borrow?
The borrowing is largely dependent on the rental income potential of the property, rather than a multiple of income for a Buy to Let mortgage. As far as maximum loan values, it’s possible to borrow up to 80% on a buy to Let mortgage, so you would need a 20% deposit.
80% mortgages have slightly higher interest rates, whereas a 75% mortgage is an awful lot cheaper and tends to be more comparable with a Standard Residential Mortgage.
How can I avoid Buy to Let stamp duty?
If you purchase a Buy to Let property as a secondary property you would pay Stamp Duty on that basis. You only pay Stamp Duty on a purchase, so if you already own the house and remortgage to a Buy to Let mortgage, there will be no Stamp Duty to pay on that property, as any duty will have been paid when you purchased it originally.
Stamp duty is definitely something to factor into the equation, especially if you will be taking on an additional property.
Is it illegal to rent a house on a Residential Mortgage?
It’s not illegal, but it is a breach of the contract that you’ve signed with your Residential Mortgage lender and you’ve signed to say you will not rent that property out. It’s not a good idea to put yourself in the position where your property could be repossessed.
Are there any other costs to consider with Buy to Let?
Many lenders charge arrangement fees for Buy to Let mortgages, which can be as high as £2000, but if you’re using a good Mortgage Broker, they will talk you through the beneficial deals. There aren’t many other fees to consider, a lot of lenders offer free solicitors and valuation on a Remortgage. There are currently some quite attractive Buy to Let products available on the market.
It’s important to ensure that you speak to a good Mortgage Broker as they will give you some recommendations based on your individual circumstances.