A number of scenarios may warrant a switch from a traditional mortgage to a buy-to-let one. These may include you deciding to move into your partner’s property while renting out your own, or inheriting an empty house with a residential mortgage that you wish to let out.
For a permanent change of status to a buy-to-let mortgage, you will need to consider what type of buy-to-let mortgage best meets your needs. If your existing lender doesn’t offer a suitable mortgage for you, you may choose to remortgage with a different lender on a buy-to-let basis. However note that this can incur penalties, depending on your mortgage term.
In this case, you will need to go through the mortgage application process again, which comes with all of the same criteria, including credit scores, proving you can keep up with monthly payments and so on.
You will also need to be aware of the responsibilities associated with being a landlord and how you can prove to a lender that you will be able to fulfil these needs.
For instance, you will need to keep your tenants up to date with certificates and have all gas appliances serviced regularly. You will also need to prove that you can afford to fork out for unexpected costs, such as repairs.
You will also need to show that you can pay the income tax on your rental income after deducting your day-to-day running expenses and that you will be able to pay your mortgage if your property sits empty while you look for tenants.
This is a loan for landlords who want to buy property to rent it out. The rules are similar to those around regular mortgages, but there are some key differences.
For instance, the fees and the interest rate tend to be much higher. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20 and 40%), and most buy-to-let mortgages are interest-only.
This means you don’t pay anything each month except the interest, but at the end of the mortgage term, you repay the original loan in full.
Most buy-to-let mortgage contracts stipulate that the customer can’t live in the property themselves, under any circumstances.
So, if you live in your rental property while it is subject to a buy-to-let mortgage, you will invalidate your mortgage. If your lender discovers this, the worst case scenario is that they may ask you to repay your loan in full.
We recommend speaking with your mortgage lender and trying to come to an agreement. The lender’s decision will be based on whether your income is sufficient to meet their lending criteria, as previously they would have taken into consideration the monthly rental income when deciding how much to lend.
They will also check your annual income to see if you can continue to make your repayments. If you are refused, you will need to go to an alternative lender for a buy-to-let mortgage.
In any event, it’s imperative that you make your mortgage lender aware of your intentions before doing anything, as breaching your mortgage conditions could have some serious consequences.
If you will only be renting out your property for a short period of time, there are other options available to you:
This is a temporary agreement giving the borrower permission to rent the property out. This is usually over a 12-month period and is used for short-term or temporary changes in your circumstances, without the need to transfer to a buy-to-let mortgage. Learn more about consent-to-let here.
Let-to-buy mortgages are used when you live in a property and want to move elsewhere. This is a popular option with couples wanting to move in together, with each living in their own place. In this case, the couple could move into one of the properties and rent the other out temporarily by using a let-to-buy mortgage.
This means the couple will have two mortgages on the go, a let-to-buy deal for the current property that they will rent out in the short term, and a standard residential mortgage for the property they want to buy or live in together.
For more property-related statistics, download the PDF below.
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