In life, things happen, and circumstances change, and this means people need to alter their plans or ambitions. How you react to challenges dictates what you achieve in life, and there is no denying the current economic and financial difficulties are hard for many people and households.
If you own a property and you are considering moving, it is natural to consider letting it out. However, you cannot just decide one day to let property and have it on the market the following day, especially if you have a mortgage.
You’ll need to engage your lender, and changing your mortgage to a buy-to-let mortgage is an essential step. This guide takes you through the process, highlighting potential problems, and advises you on converting a residential mortgage to one that allows you to let property with confidence.
Will demand for rental property continue?
While there are no guarantees in life, there is a confidence that demand for rental property, and strong rental fees, will remain in place for many years to come. Leading property portals such as Rightmove and Zoopla report annual rents have increased in the UK. As of July 2022, the increase was 11%*.
Many studies and surveys with landlords indicate their optimism surrounding the market. One July 2022 study by Handelsbanken shows that 86% of portfolio landlords believe rental demand will increase significantly in the next 12 months**.
These findings should provide potential landlords with confidence to enter the rental market.
Can I switch my residential mortgage to a buy-to-let?
There are 2 ways to achieve this is:
- Obtain ‘Consent to let’ from your existing mortgage lender
- Remortgage to a different lender.
In theory, switching your residential mortgage to a buy-to-let mortgage is possible, but every lender is different. Before doing so, you should prepare for the process as though you were applying for a new buy-to-let mortgage.
This means you should prepare your finances accordingly, and it will be helpful to create a business plan or at least provide projections for rental income with the property. If you have never done this before, it can be an arduous task, but plenty of guidance is available online, and specialist mortgage brokers will help you with the application process.
Also, remember that you don’t have to stay with the same mortgage provider. Many people remortgage their home, switching to a different lender if it is financially viable. You should review your options in the rental market, and it might be another lender that will provide you with a better rate and solution.
Of course, for convenience’s sake, many people prefer to stay with the same lender. There might also be financial clauses for switching (mortgage type/rate, redemption fees), so review the terms of the mortgage agreement for this information.
Therefore, switching from a residential mortgage to a buy-to-let mortgage is possible, but every instance is unique.
What is Consent to Let?
This is where your existing residential mortgage lender has given you permission to rent out your property. You should make sure you get this confirmed in writing also.
Is a buy-to-let mortgage more expensive?
Typically, a buy-to-let mortgage is more expensive, so you should prepare for this outcome.
Many lenders view this style of mortgage as a higher risk than traditional mortgages. The rate on offer depends on many things, including personal circumstances and the lender, so it makes sense to review your options in this market.
There will also be fees for switching your mortgage, and some lenders will have charges relating to having a buy-to-let mortgage with them. You must budget for all these additional charges to ensure you know the full extent of the cost of a buy-to-let mortgage.
As a landlord, you must budget accordingly, which means knowing all your incomings and outgoings. If you need assistance tracking outgoings, calling on an expert is worthwhile. This represents another outlay, but in doing so, it will ensure you make informed decisions, potentially saving money, time and heartache in the future.
What happens if I don’t change my mortgage to buy-to-let?
If you let property with a typical residential mortgage in place for the home, there is a strong chance you will be in breach of the terms and conditions of your mortgage. Violating the terms of your mortgage agreement leaves you open to:
- Additional charges or penalties from your lender
- Increased mortgage rates as a penalty
- A request to pay off the mortgage immediately
These penalties could have a massive impact, so, if you want to avoid these problems, contact your mortgage provider and explain your situation.
How to remortgage onto a Buy to Let mortgage
If your goal is to switch to a buy to let mortgage and at the same time capital raise for a deposit for your next property – this could be achieved by remortgaging the property to a new lender with a buy to let mortgage. The amount you can borrow will be determined by the rental income you can achieve.
Do you pay stamp duty when converting to buy-to-let?
No, you only pay stamp duty at the time of buying a property, and even then, there are limits on what you pay. Of course, there is a higher rate of stamp duty applicable on second properties, so it is natural for prospective landlords to ask if this is a potential issue for them.
Thankfully, changing the use of a property doesn’t require you to pay additional stamp duty charges.
Can a family member live in my buy-to-let?
Like most things, the answer depends on the circumstances.
Only a few lenders will allow you to rent out the property to a family member. Most buy to let mortgage agreements don’t allow this, so it is important to source the right mortgage product from the start to avoid breaking any terms and conditions of your mortgage.
How soon can I get consent to let with my existing lender?
While the answer depends on your agreement with your lender, it is uncommon for lenders to allow a change in terms within the first six months of the contract. Of course, your mortgage’s actual terms and conditions might state a longer term or could prohibit this sort of switch entirely.
Be sure to review the terms of your mortgage agreement, and if you require assistance, please liaise with your lender for tailored guidance.
Tax implications of a Buy to let property
If you are considering renting out your property, you should take time to consider the tax liabilities that you will have on this rental income. There have been many tax changes in this sector over the last few years, so getting property tax advice is key before starting any applications to switch to a buy to let mortgage.
How to explore your buy-to-let mortgage options with The Money Hub
If you are looking into switching from a residential mortgage to a buy-to-let mortgage in 2022, and you require assistance in finding the best option, help is available.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.
Sources:
*https://selectproperty.com/2022/06/rightmove-reports-uk-rental-market-is-at-a-record-high/
**https://www.buyassociation.co.uk/2022/07/20/landlords-predictions-rental/
