Changing Your Mortgage To Buy to Let

Can I switch my residential mortgage to a Buy to Let?

Yes, although it depends on your circumstances as to whether it is possible. The most common scenario when switching your mortgage to a Buy to Let is called Consent to Let.

Essentially, this is when you have a residential mortgage and you’re tied into a product, but your living arrangements have changed. You might be moving in with a partner or relocating for work. You need to let out your property and you request consent from your lender.

Another common scenario is called Let to Buy, where you’re intending to buy a new residential property, but you would like to retain your existing property as an investment.

How much equity do you need to switch to a Buy to Let mortgage?

The majority of lenders will want 25% equity within the property. A few will allow 20%. The key factor here is the rental stress rate test that they do.

Each lender has its own stress rates, but it’s linked to your individual incomes, your tax bracket and the rent that you’ll have coming in. Those things will determine how much they will lend.

What’s the process when changing from a regular mortgage to a Buy to Let?

It’s circumstantial, so we would always encourage our clients to contact us first so that we can have a better understanding of what’s changing. Then, of course, we can offer advice or guidance as to what you need to do next.

When you’re going down the Consent to Let route, you will typically have to approach your lender, request consent, and they will have a set list of rules and criteria for you to adhere to to gain consent for a temporary period.

In the Let to Buy scenario, you will typically have to provide evidence of a rental appraisal.

You need to know exactly what your property is going to rent out for. As part of the application process, a Let to Buy lender will also want to see the property you’re moving into.

The transaction usually has to be simultaneous. You apply for a Buy to Let or Let to Buy remortgage, and you’re also applying for a residential mortgage for your future address.

What criteria do I need to meet to change my mortgage to a Buy to Let?

The typical minimum income is around £25,000. A 25% deposit is typically needed. The rental calculations are key and a tenancy agreement may need to be in play. One of the main criteria is that the majority of lenders will want to know that you’ve owned the property for six months.

As Adam’s highlighted, we also need a letter from the letting agent confirming the rental figure you’re going to achieve on the property. They will also want to know the details of your onward purchase, to confirm you’re moving out and going to the next property.

The other scenario where you can get Consent to Let is where you may be going to a rental property or tied accommodation. Again, lenders will have certain criteria for that. There may be a minimum let out period of three or six months, for example, that needs to have passed before they’ll move the mortgage over to Buy to Let.

What happens if you rent your property and don’t change your mortgage to a Buy to Let?

There are a few key issues here which are serious and you need to be aware of them. If you’ve not received Consent to Let the property, they can impose additional interest rate charges when they find out.

They can force you to repay the mortgage, although you’ll typically be given a chance to find a new lender by remortgaging to an appropriate Buy to Let mortgage.

But of course, if your circumstances do not fit a Buy to Let mortgage, the worst case scenario is that that lender can actually repossess the property to repay the debt to them.

You can also be blacklisted, where an alert on your credit profile could affect future credit applications. On mortgage applications lenders can see that you’ve not been a good borrower in the past, as you’ve gone against the terms and conditions of that contract.

One of the most important things to know is that if you don’t have the right mortgage for the property, it can actually invalidate certain insurances – such as your buildings and contents cover or landlord’s insurance.

You might let out the property and buy landlord’s insurance, which is the correct thing to do, but if your property burns down or is significantly damaged, the insurer will contact your lender and ask whether you have the right mortgage. If you don’t, they can actually refuse to pay the claim.

That can also affect public liability. If your tenant is seriously injured because of an issue with your property that you should have fixed, you may not be covered.