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Can you change your mortgage to a buy to let?
People choose to change their mortgage to a buy to let when they decide to put tenants into the property to generate an income. This may be down to relocation (for example a new job), wanting to buy a new home and keep the old property or perhaps even wishing to sell the property and being unable to.
This can leave people with the dilemma of what to do with the mortgage to suit their circumstances.
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What is consent to let?
Consent to let is when you speak to your current residential mortgage lender and they allow you to rent out your property.
An instance of when this may be needed is when someone needs to relocate for work, whether temporarily or permanently so lets their lender know and asks for permission to rent the property to tenants.
Different lenders have different criteria on whether they grant consent to let, how long they grant it for, under what circumstances, whether there is a fee payable, whether the rate remains the same and more.
Some may also stipulate that the mortgage needs to have been in place for a certain amount of time before they allow the mortgage to change to allow tenants.
It is also not uncommon for some lenders to make changes to the account, for example, charge a higher rate of interest whether at the time or in the future (perhaps after a year).
If your current residential product expires when the mortgage is on a consent to let basis, many lenders will not give you a new residential product if the property is tenanted. This could put you in a position where you need to remortgage onto a buy to let mortgage.
As there are many things to consider, professional advice is important.
Will my lender always give me consent to let?
Consent to let is not guaranteed with every lender. Many will want to know what your plans are, why you are now wishing to let the property, and how long you want to rent it out for (is it a permanent arrangement?)
Some lenders may say that you have not had the residential mortgage in place to allow the change and if it is very sudden after going live, some may be concerned that renting the property out was always the intention.
Not every lender offers consent to let at all so if you think it may be needed at some point in the future, it would be worth asking your adviser whether the lender considers this. They may not know whether you would get it if it’s on a case-by-case basis but knowing that it is a possibility could be a good guide.
As always, do your research and consult a professional.
What is a let to buy mortgage?
A let to buy mortgage is when you replace the mortgage on the property that you live in to turn it into a buy to let. This is usually then used to purchase a new home (many people raise money at the same time but not always).
The lender looks at the rental potential of your property and lends against the value of it using the anticipated rental income for affordability purposes.
A let to buy mortgage is usually more of a permanent arrangement than a consent to let mortgage. This is because it often means completely changing lenders onto a bonified buy to let product. As a result, you can not move back into the property with a let to buy mortgage on it whereas you could with consent to let, you would just tell the lender it is residential again. Read more: Let To Buy Mortgage With No Onward Purchase
Remortgaging to a buy to let when I have left the property?
Another route may be remortgaging the property once you have already left the property. You should always tell the lender before leaving/renting out the property but in the instance where this has not happened and the property is now tenanted, you may be looking at converting the mortgage to a buy to let.
This would likely mean arranging a buy to let mortgage replace the current residential one. Lenders have different criteria on whether they would grant this. For example, how long the property has been let, your residential status now (own a new home, renting, living with family etc) and your income will be considered.
It would be prudent to find an experienced mortgage adviser that can find out about the situation and recommend a lender accordingly.
What can be the challenges in changing your mortgage to a buy to let?
There can be many challenges when it comes to replacing your residential mortgage for a buy to let, consent to let or let to buy.
One challenge may be the loan amount itself. If your borrowing level is 85% to 90%, it may not be possible to then replace the mortgage for a buy to let or let to buy as they often go up to a certain loan to value, commonly 75% of the property price (some lenders can go higher).
Another challenge may be getting the loan amount needed when the rental value of the property is not as high as it needs to be. Lenders use a ‘stress test’ which is their calculation of what the property needs to achieve to get the desired lending. If the rental yield is not high enough, this may affect things.
Getting consent to let is not always guaranteed so this could present a challenge too. Your lender may not offer it in the first place. If they do, they may not allow it for the amount of time that you need or if they increase the rate, perhaps this puts you in a difficult position financially.
Your credit score may stop you from getting a buy to let mortgage which could mean you do not get the option to replace the mortgage for the type of product that you need. You can find out your credit score by visiting websites such as Experian, Equifax and Check My File.
Mortgages are a complicated subject and there are often different routes to be assessed to match your situation. You should always look for professional advice when thinking of taking a mortgage.
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There are usually options for changing your mortgage to a buy to let but it’s important to know which is the best option for you.
You may be able to look at consent to let or a buy to let remortgage when you have left the property.
It’s always best to find an experienced mortgage adviser who can tell you your options and help you work out which is best for you. Should you like I NEED ADVICE to match you with an experienced mortgage adviser, please complete the contact form.