There are plenty of reasons why you might want to start renting out a property you’ve been living in, but you must let your mortgage lender in advance.
If you have a residential mortgage, you’ll be breaking your mortgage terms and conditions if you move out and let tenants move in, so you’ll need to switch to a buy to let mortgage. These are specially designed for homeowners who want to rent out a property.
Whether you have found your dream home, but don’t want to sell your current property, or have inherited a house and you need to rent it out, there are a couple of options to explore when changing from a residential mortgage to a buy to let.
Here we outline the most popular options for switching to buy to let along with some of the key things you might want to consider.
If you’re looking for expert advice on getting a buy-to-let mortgage, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice. Your first consultation is free.
How does transferring to a buy to let mortgage work?
When you take out a residential mortgage your mortgage agreement will usually outline that your property will be your primary residence and that you can’t rent it out without your lender’s consent. If you start letting out your property without your lender’s consent, you could be committing mortgage fraud, which has serious consequences including your lender won’t lend to you again, or in the worst case, losing your home and possible jail time. So, if you want to start letting your property, you’ll have to ask your lender first, and depending on your situation, they might offer you one of the following options:
Consent to let
‘Consent to let’ is a short-term solution, where your lender will allow you to rent out your property for a set period, the length of which will vary from lender to lender, after which your lender will usually require that you move back in. If the lease term comes to an end and you want to keep letting it out, most lenders will require you to switch to a buy to let mortgage.
The difference between buy to let and consent to let is that with consent to let, your mortgage will remain a residential one, but your lender will include additional terms and conditions for the duration of you leasing your property. They will probably charge you a fixed percentage of interest on top of your usual mortgage costs as well.
To qualify for consent to let, you need to apply to your lender before you start renting out your property. It’s worth knowing that your lender doesn’t have to grant you consent, and if you’ve started renting out your property already you could be committing mortgage fraud, so it’s really important to get permission before you start looking for tenants.
Buy to let
If you plan to rent out your property on a more permanent basis, or if your lender has denied your consent to let application, then your other option is to remortgage to a buy to let mortgage.
You can’t simply switch from a residential mortgage to a buy to let one, so you will have to remortgage to an entirely new product either with the same or a new lender. Whilst sticking with your current lender is likely to be the most straightforward option, you might be able to find better buy to let mortgage rates available elsewhere. Bear in mind too that the application process for a buy to let mortgage is not the same as for a residential one. Some of the main differences include:
- How affordability is assessed and how much can you borrow – With a buy to let mortgage, affordability is assessed on your predicted rental income, not just on your financial situation. Lenders typically look for rental income to be equivalent to at least 125% of your mortgage payments, or sometimes more than this.
- The criteria for a buy to let mortgage – You will usually need a deposit of at least 20% or 25% of the property value, compared to 5% or 10% for a residential mortgage.
- How the mortgage is repaid – Most buy to let mortgages are arranged on an interest-only rather than a repayment basis.
- Buy to let rates and arrangement fees tend to be higher – When you remortgage or take out a mortgage there are always fees and interest rates to consider, however, buy to let mortgages typically have higher interest rates and fees than standard mortgages.The specific costs will largely depend on your property and its size, type and value.
If you’d like to see how much you might be able to borrow for a buy to let property, simply enter your expected rental income in our buy to let mortgage calculator to get an estimate.
Let to buy
If you’re planning to rent out your current home so you can buy a new property for you and your family to live in, you’ll need a let to buy mortgage rather than a buy to let mortgage.
These mortgages can be instrumental in helping families who need to move but can’t sell their home. They are not as widely known as other mortgage types but are offered by around 20 lenders, including some high street lenders. Borrowers will need two mortgages, one for the property they want to rent out, and another for the property they are buying to live in.
For more information on things you might want to consider if you’re thinking about taking out a buy to let mortgage, have a look at our article Buy to Let: a beginners guide and Understanding buy to let mortgages.
How much does it cost to remortgage to a buy to let mortgage?
Any time you remortgage your residential property, you’ll usually have to spend between £500 and £3,000 to do so. This should cover the valuation of your property, along with legal fees, and any mortgage arrangement fees, but costs may be more or less than this depending on your individual circumstances and the property you are remortgaging.
You must also remember that you’ll usually need to have at least 20% or 25% equity in the property to be able to remortgage from a residential to a buy to let mortgage.
While not a direct cost of remortgaging to a buy to let mortgage, if you intend to rent out your existing property and buy another one to live in, you will pay an additional 3% Stamp Duty on top of the usual Stamp Duty rate for your new property. This is an additional layer of tax you need to pay if you own more than one residential property. Find out more about how Stamp Duty works in our guide Stamp Duty explained.
Finally…
If you are thinking about switching from a residential mortgage to a buy to let or let to buy one, it might be helpful to seek professional advice so you can find the right deal for you based on your individual circumstances. Find out more in our guide Should I get advice on my mortgage?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.