Converting a Residential Mortgage to a Buy to Let

couple holding house keys

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 Rent Out a Property with a Residential Mortgage?

Technically, yes you can rent out a property with a residential mortgage.

This can be done in one of two ways. The first is to illegally rent out your property without the consent of your lender. Obviously, you should never illegally let your property. The second is to obtain consent to let from your lender.

In most cases a residential mortgage lender will not permit you to rent out your property. However, this should be your first port of call as it can be the easiest way to rent out your home without changing your mortgage product.

Lenders will consider your personal situation and then decide based on your circumstances before giving you consent to let.

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

In most cases, you will need to convert your existing residential mortgage to a Buy to Let mortgage.

This is because lenders have different criteria for properties that are lived in residentially to those being rented out.

For example, with a residential mortgage product the lender has a minimum timeframe that you must occupy the property each year. They also know that people who own their own home are more likely to look after the property than renters. This reduces the risk for residential mortgage lenders.

With a Buy to Let mortgage, the property will be rented out to a third party who may not care at all about maintaining the property condition. The property could also go unoccupied for prolonged periods of time between tenants adding to the risk for a lender.

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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.

In most cases, Lenders put a penalty on you if you exit the mortgage within the product period. This penalty is known is 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 penalty for exiting your mortgage product 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, a mortgage broker or your lender will be able to tell 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 Happens if I Don’t Change my Mortgage to a Buy to Let?

If you do not change your mortgage to a Buy to Let you will need to have consent to let from your existing mortgage lender.

Failing to get consent to let or converting a residential mortgage to a Buy to Let mortgage can land in you in boiling water. Essentially, you will be breaching your mortgage contract as residential mortgage contracts all have explicit rules about not letting or renting out the property.

If you breach a mortgage contract a lender has several avenues available to them. In the first instance they will likely ask you to rectify the situation. If you have sitting tenants this can be difficult as landlords have legal responsibilities around evictions.

If remedying the situation fails a lender will be within their rights to enforce the contract through the courts, ultimately leading to repossession.

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

If you have consent to let from your lender, you will not be doing anything unlawful. If you have failed to 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 Specialist

It is important you seek expert advice when you decide to rent out your residential property.

Boon Brokers is a Whole of Market Mortgage, Insurance, and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice including converting your residential mortgage to a Buy to Let.

Book your no obligation mortgage consultation with Boon Brokers today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.