A buy-to-let mortgage is all about obtaining a property that you will rent out to tenants to gain an extra source of income. Whether you’re moving to a new property or remortgaging your current one to switch your mortgage to a buy-to-let, there are some things you need to consider to ensure you get the best possible deal.
Think Plutus receives a number of clients asking how they can switch their mortgage to a buy-to-let and the answer is that it depends on the type of mortgage you currently have on the property. It also depends on who you intend to rent your property to, where you intend to live moving forward, and the number of other properties you currently own.
As with all financial decisions, there are good moves and bad moves that depend entirely on your circumstances. On this page, we will run through the key considerations to answer your questions about switching to buy-to-let, but we urge you to contact Think Plutus for expert, tailored advice for your unique situation.
How do I change my mortgage to a buy-to-let?
Changing your mortgage to a buy-to-let is dependent on the type of property involved, your personal circumstances and the terms and conditions of your original mortgage agreement. In the end, it all comes down to your mortgage provider giving consent to making the switch.
Changing your main residence to buy-to-let and purchasing a new property
It is becoming increasingly common for us to meet clients who are buying a new property and renting out their old one. Poor interest rates on savings in the bank are a likely cause for this as people look for more effective ways to save money. Recent stalling, and even drops, in house prices may also be a factor, with a widespread consensus that we will see property values start to climb again over the next few years. Customers who are able to take on two mortgage products simultaneously are choosing to rent out their property rather than sell in the short term.
Essentially, you have two options – a let-to-buy mortgage or obtaining consent to let. Let’s look at these two in more detail:
A Let to Buy mortgage is where you purchase a new property as your home with a new residential mortgage and rent out your old property by switching your existing mortgage to a buy-to-let. Some lenders are wary of let-to-buy arrangements because there is the risk of gaps in tenancy that could make it difficult for borrowers to keep up with payments on both properties. This risk is considered greater if the borrower has no previous experience as a landlord, and no other income/security.
Consent to let
If you have a particularly good mortgage deal, it may be worth checking with your lender if they would grant permission to rent out the property under the existing mortgage contract. This effectively transfers the debt from one place to another. There is no guarantee they will accept, but it’s worth exploring, particularly if you plan to buy a new property in cash, move into a rented property or cannot port your existing mortgage. If they decline your request, you will need to remortgage to buy-to-let.
Consent to let will mean your rental property is still on a residential mortgage, which could mean you have fewer options for obtaining a mortgage on your new property. There is usually a limit on the number of residential mortgages you can have simultaneously, but some lenders will allow two. There are even some lenders that will lend up to four or beyond, providing you can demonstrate affordability.
It’s also possible to raise funds from your current property to put down as a deposit on your new home, if you have enough equity to release. We call this a second charge mortgage; a secured loan where you can receive anything up to the available equity in your property. This could be a viable option for a deposit.
Changing your main residence to buy-to-let and moving into rented accommodation
If you plan to move out of the property you own to rent elsewhere, you might find that lenders are reluctant to switch your residential mortgage to a buy-to-let. Some lenders are happy to consent to this switch, but there is risk to the lender if the borrower decides not to repay, and this causes many lenders to be cautious. There is also a risk of fraud in this situation – customers might request the switch to a buy-to-let and continue living in the property whilst simultaneously earning an income from tenants.
For a lender to approve this switch in mortgage type, they will usually require you to provide proof of your projected rental income. You may find that your interest rate increases when you switch to buy-to-let. To ensure you can afford your monthly repayments, your rental income will need to be at least 125-145% of the monthly mortgage repayment amount.
Staying with your existing lender can mean you miss out on better buy-to-let switch rates. Contact Think Plutus to benefit from a whole-of-market search to find the very best deals available.
Getting the best rates for your mortgage
When switching mortgages, one of the main priorities should be getting the best possible rate. If you already have an excellent mortgage rate, your current lender might be the best option available to you. They may agree to transfer your current mortgage rate to another property.
If, however, they do not give this consent, your first port of call should be Think Plutus. Our advisers can check the rates and mortgages you’ll be eligible for – it may even be worth checking with us if you do get consent from your lender, as we may find a superior deal for you. Our advisers will always go all out to find you the best possible deal, and we’re just a phone call away.
Is it a crime to rent out a property without obtaining a buy-to-let mortgage?
Technically, you wouldn’t be doing anything illegal, but by renting out your property without switching to a buy-to-let, you could be in breach of contract with your lender. If you rent out your property without switching to buy-to-let, and your lender finds out, they may have the right to demand repayment of the entire mortgage instantly. In most cases, this will mean repossession of the property in question.
Don’t take this risk. Notify your mortgage lender as soon as possible. It may be that you become an ‘accidental landlord’ – you’re having difficulty finding a buyer so you want to let the property while you search, so you might need what is know as a consumer buy to let mortgage. Think Plutus can guide you through the entire process of converting a residential mortgage into a buy-to-let one, taking all the stress out of it for you.
How soon can you remortgage a buy-to-let?
This depends entirely on your mortgage lender. Some will not allow you to remortgage until you have owned the property for at least six months, and this minimum ownership period can often be longer than that. There may also be restrictions on giving consent to let based on the length of time you have owned the property.
Is a buy-to-let mortgage more expensive?
Generally speaking, there are more associated costs with buy-to-lets as opposed to residential mortgages. Of course, this depends on the lender and the way they calculate their mortgages, and your personal circumstances will play a role.
You can expect to be asked to put down a larger deposit (a typical amount is 25%). Stamp duty is higher and there will potentially be higher fees as well. The mortgage rates are also higher in most cases, particularly if your LTV is higher, as the lender will want to recoup more money in the event that there is a default.
Think Plutus can advise on the potential costs associated with any buy-to-let mortgage deal, including the option of limited company buy to let mortgages. We can give you a rough idea of the type of quote you can expect to be offered.
Speak to the experts
If you have the objective of converting your existing mortgage into a buy-to-let, contact Think Plutus to get expert advice you can trust. Our advisers have access to the entire mortgage market, including lenders and products that are not available to the general public. We are best positioned to offer tailored advice for your circumstances and find you the best possible deals by performing a whole-of-market search on your behalf. For professional advice on switching to a buy-to-let mortgage, Think Plutus.