Property investment UK is a lucrative business which offers a number of options. One of these is the BTL or buy to let. BTL investment is gaining in popularity among landlords across the UK as it allows for a stable rental income over the years. Many landlords with residential mortgages switch their residential mortgage to buy to let mortgage and move to another property, which may be either owned or rented.
What is a buy to let mortgage?
This is a loan for landlords who want to buy property for the purpose of renting. The rules for these mortgages is similar to the regular mortgages, but there are some key differences. For example, the fees and interest rates for buy to let mortgages are much higher than the regular mortgages. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value, and most buy-to-let mortgages are interest-only. This means you have to pay the monthly interest only but need to repay the original volume in full at the end of the mortgage term.
Property investment UK buy to let is a viable option for landlords as well as renters as it generates a source of income for landlords, while providing the tenants with a place to live in times of housing crisis.
Switching from residential to buy to let mortgage
Switching residential mortgages to buy to let mortgages is becoming very common across the UK as they can cash in on their property investment UK.
A number of scenarios may warrant a mortgage switch, such as moving home or having an empty house under a residential mortgage. Switching from a residential mortgage to a buy to let mortgage is very common across the UK. However, it finally comes down to the lender’s discretion as they are not obliged to convert residential mortgages to buy to let mortgages. A landlord needs the consent from the lender for switching the mortgage. In case, the current lender declines, then a remortgage with a different lender on buy to let basis is an option. This can incur early redemption penalties, depending on the mortgage term. However, switching mortgages requires careful considerations in order to secure a mortgage offering with the best rates. As the switching process involves professional expertise and skills, it is advisable to seek specialist advice before attempting the switch. You should remember that a buy to let mortgage is completely different from a residential mortgage. You should explore various options across lenders to check what buy to let rates you will qualify for. Although, you can change your mortgage with your current lender (depending on the lender’s approval or disapproval of the application), a wider exploration involving other lenders may provide more options and you can choose the best mortgage based on your eligibility.
This creates more options for property investment UK as it allows landlords to rent out a property, while living at another property.
The approval for switching mortgages usually depends on:
- Current mortgage type
- Intentions regarding the property
- Your future living plans
- Your other mortgages
- Terms of your current mortgage
- Lender consent
Remortgage process & prerequisites
The process of remortgage is similar to the mortgage process and the applicant/landlord has to go through the process all over again. This involves all of the same criteria required for the mortgage process and the applicant’s credit score and the ability to repay the mortgage are considered to determine if the landlord can keep up with the monthly payments and so on. As a would-be BTL landlord, you need to be aware of the duties and responsibilities that come with the status of a landlord and should be able to prove to the lender that you will be able to fulfil these needs. For example, you will need to keep your tenants up to date with certificates and have all the appliances serviced regularly. You will need to prove that you can afford to meet the unexpected costs such as repairs. You will also need to show that you can pay the income tax on your rental income after deducting the daily expenses. You should also be able to show that you will be able to pay the mortgage if the property lies vacant between tenancies.
Getting a buy to let mortgage and moving into a rented property
You can explore this option if you currently have a residential mortgage but want to move out to a rented property and let your existing property. Although, some lenders may be reluctant to approve it due to the risks associated with the option. This is because buy to let mortgages are usually offered to existing homeowners with at least a residential mortgage. As the rental income out of a property may be higher than the mortgage repayment, a default in rental payments by tenants may cause significant financial difficulty for the landlord, resulting in additional risk.
Is it possible to live in a house with a buy to let mortgage?
Most buy to let mortgages do not allow for residential use of a buy to let property by the landlord. Living in your rental property while it is subject to a buy to let mortgage will invalidate the mortgage. In the worst case, the lender may ask you to repay the mortgage in full.
The best option going forward is to keep your intentions across to the mortgage lender before doing anything as breaching the mortgage conditions may result in some serious consequences.
In case you want to rent out the property for a short period of time, following options are available:
Consent to let
This is a temporary agreement, usually over a 12-month period, which gives the borrower permission to rent the property out for short-term as a result of temporary changes in the borrower’s circumstances, without the need to switch to a buy to let mortgage.
Let to buy
A let to buy property means you buy a property to live in on a new residential mortgage and rent out the existing property by switching the existing residential mortgage to a buy to let. You may also remortgage your existing home to fund a deposit for your new home.
Switching a residential mortgage to a buy to let is a viable proposition, which depends on your lender’s consent, among other factors.