Converting a Residential Mortgage to a Buy to Let

If you have a residential mortgage, you may be wondering what your options are if you want to rent out your home and become a landlord. There are complicated rules around renting out a property with a mortgage and you will need to ensure you are renting your home in the right way.

The good news is there are some straightforward solutions for renting out your home and with the right mortgage advice, you can do it with relative ease. Getting it wrong however can land you in serious trouble.

Let’s discover how to convert your residential mortgage to a Buy to Let and other options that may be available to you.

Can I Change My Residential Mortgage to a Buy to Let?

Yes you can switch to a buy to let mortgage. Buy to let is a great option if you want to keep your existing house and move in with a friend or partner, move locations or buy a new home.

This type of mortgage also allows you to boost your income by growing your own rented property portfolio.

How do I Change to a Buy to Let Mortgage?

The first step is to speak to a mortgage broker, like us. We take the time to understand your situation and figure out the best options for you. We will handle all communication with your current mortgage lender and new potential lenders to find you the best buy to let deal.

Just like when getting a residential mortgage, the mortgage lenders will carry out a mortgage affordability test to check you will be able to afford the repayments. However, rather than basing your borrowing potential on your income, the lender for a buy to let mortgage will look at how much rental income is expected from the property. Typically the rental income should be 125% of the mortgage repayments, known as interest coverage ratio.

There is slightly more risk associated with renting, so the lender wants to make sure that they will receive the repayments, even if the property is empty for a period of time.

What is the Lender’s Criteria?

There are a number of factors that lenders will consider before switching to a buy to let mortgage.

Affordability

As mentioned above, one of the main concerns for lenders is whether you can afford to make the loan repayments. Typically lenders will carry out a stress-test to see if you can make at least 125% of your monthly mortgage payment amount.

Equity

There is no deposit requirement, but lenders will usually ask for 20-25% equity in the property to switch to a buy to let mortgage. This percentage may also increase if you have bad credit.

Credit History

Your credit score can impact your chances of obtaining a buy to let mortgage, especially if you have poor credit history. There may be lenders who offer bad credit mortgages but it is best to work on improving your credit score to increase your chances of obtaining a mortgage that is right for you.

Landlord Experience

Some lenders may offer limited mortgage products to first time landlords. If you have been a landlord previously, you may find that you have access to more deals with more lenders.

Thanks to our whole of market access, we have a wide range of mortgage lenders that we work with. Whether you have bad credit or are a first time landlord, we can help you secure the best BTL mortgage.

How Long After Buying a House Can I Rent it Out?

Normally you will take a mortgage product that has a deal attached to it. For example, you may be fixed into an interest rate for 5 years.

If you want to leave the fixed deal early, you will usually have to pay an exit fee, known as an Early Repayment Charge (ERC).

Some Early Repayment Charges can be substantial, and you might need to pay up to 5% of the loan amount to exit early. In cases where the potential rental income does not outweigh the ERC it is normally advisable to wait until your product term ends before refinancing.

If you have no early exit fee or are not on a mortgage product, you should be able to convert your Residential mortgage to a Buy to Let at any time as long as the property passes the lender’s rental stress test and equity requirements. To double check whether you can do this or if you have an ERC, you can check your existing mortgage paperwork.

If you are confused by your existing paperwork or unsure about whether you can exit, we can help you.

Does a Buy to Let Property Count as a Second Home?

No, a Buy to Let only counts as a second home if you own an additional property.

For example, if you buy a new property and retain your existing property then one of the properties would be deemed a second home.

If you do not buy another property or already own another property, your Buy to Let will be classed as a single property.

This should not be confused with first time buyer status for stamp duty purposes. Owning a property at any point in the past (even outside the U.K) will remove your first-time buyer status, even if you do not own another property at the time of your purchase.

What is Consent to Let?

Consent to let is when a mortgage lender gives permission to rent out your home on a temporary basis. If you don’t change your mortgage to a buy to let, you have to get consent from your lender to rent the property on a residential mortgage.

It is essential that you get consent from the lender, otherwise you will be breaching your mortgage contract. All residential mortgage contracts have explicit rules about not letting or renting out the property.

If you breach the mortgage contract, a lender is within their rights to enforce financial penalties, demand repaying the entire mortgage immediately or even repossess your home.

If you want to rent out your property you should contact your lender or a mortgage broker immediately to arrange permission.

Is it Illegal to Rent Out a Property without a Buy to Let Mortgage?

If you have do not get consent to let, you are potentially breaking the law on multiple fronts.

The first is you will almost certainly be committing mortgage fraud as you have wilfully obtained a mortgage and not stuck by the terms of that mortgage. Courts take a dim view of this, and lenders are often granted repossession orders where someone has breached their mortgage contract.

Alongside your responsibility to maintain your mortgage contract, you will have obligations as a landlord. If you are in breach of your mortgage contract and a lender wishes to enforce the contract, it is likely you are going to run into legal troubles down the line when tenants need to be evicted.

This is because in the event of a repossession, your tenants will be in situ without a valid rental agreement. As a tenant makes that agreement with you, you will be liable when tenants are forcefully evicted from a property.

Speak to a Buy to Let Specialist

It is important you seek expert advice if you want to rent out your residential property.

At Boon Brokers, we are a Whole of Market Mortgage, Insurance, and Equity Release Brokerage. We provide fee free mortgage advice including converting your residential mortgage to a Buy to Let.

Book your no obligation mortgage consultation with us today.