How to Remortgage Residential to Buy-To-Let

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Remortgaging has become a popular financial strategy for homeowners looking to unlock the potential of their properties. However, the process takes a unique turn when the goal is to transition from residential to buy-to-let.

In this comprehensive guide, we’ll explore the intricacies of remortgaging for the purpose of entering the lucrative buy-to-let market.

What Is a Buy-to-Let Mortgage?

A buy-to-let mortgage is tailored for individuals purchasing a property with the intention of renting it out to generate income, rather than residing in it themselves.

If you currently hold a residential mortgage designed for homeowners, it likely includes clauses prohibiting the rental of the property. However, if you’ve decided to shift from living in your home to renting it out, a buy-to-let mortgage becomes essential.

Securing a buy-to-let mortgage grants you the authority to rent out your property and reap the financial benefits for an extended period. It’s a financial move that allows you to turn your property into a source of income – a win-win!

To obtain a buy-to-let mortgage, it’s advisable to consult with a specialist mortgage advisor. Their expertise can provide personalised guidance, potentially saving you thousands in repayments, and they can efficiently handle the entire mortgage application process.

If you’re unsure where to find a reliable broker, consider checking out Your Mortgage Expert. As a distinguished Independent Mortgage broker firm, we take pride in our commitment to excellence, ensuring that our clients receive the finest financial guidance tailored to their unique needs.

Is It Possible For People To Change to a Buy-To-Let Mortgage?

Yes, it is entirely possible for individuals to switch to a buy-to-let mortgage. The decision to transition from a residential mortgage to a buy-to-let mortgage is a strategic move often made by property owners who wish to shift from living in their property to renting it out for income.

The process typically involves informing your current mortgage lender of your intention to change the nature of the property usage. However, it’s essential to note that there are distinct differences between residential and buy-to-let mortgages, such as deposit requirements, interest rates, and repayment structures.

Before making the switch, it’s advisable to consult with a specialist mortgage advisor. They can provide personalised advice based on your financial situation and guide you through the process.

Additionally, a buy-to-let mortgage advisor can help you explore potential lenders, understand the associated costs, and ensure that you comply with legal and regulatory requirements.

How Does The Transition To a Buy-to-Let Mortgage Work?

Switching to a buy-to-let mortgage involves a distinct set of dynamics compared to residential mortgages.

First and foremost, buy-to-let mortgages often come with higher costs. Typically, a larger deposit is required, and you’ll encounter elevated interest rates and fees. However, don’t be discouraged by these factors!

When it comes to the remortgage cost, the good news is that your property should be generating income. Despite the higher rates, the rental income you receive each month should comfortably cover these expenses.

A notable feature of most buy-to-let mortgages is their interest-only structure. This means that your monthly repayments will solely address the interest accruing on your loan, not the principal itself. Instead, you’ll be responsible for repaying the entire loan in one lump sum at the conclusion of your mortgage term.

However, it’s crucial to remember that with a buy-to-let mortgage, your property is viewed as an investment – a means to generate income. Consequently, many landlords opt for remortgaging, the process of switching to a new mortgage, until they decide to sell the property and use the proceeds to repay the loan.

Speaking of remortgaging, it’s essential to recognize that, as you won’t be residing in the property, selling it to settle your mortgage isn’t as daunting as it may seem. In essence, it won’t make you homeless!

Do I Require Permission to Lease from My Mortgage Provider?

When considering renting out a property that currently holds a residential mortgage, it is necessary to seek consent to let from your lender. This requirement arises because residential mortgages fall under the comprehensive regulation of the Financial Conduct Authority (FCA), unlike buy-to-let mortgages, which lack such strict oversight.

Therefore, allowing the rental of a residential property without the lender’s approval could lead to a breach of mortgage terms.

Consent to let entails obtaining permission from your lender to lease your home, typically for a duration ranging from 6 to 12 months. It is distinct from a buy-to-let mortgage, where the intention to lease a property is declared at the time of the mortgage application.

While consent to-let is essential, your lender is not obligated to grant it. This authorization is particularly relevant if you have intentions of returning to the property at some point, indicating that the letting is not indefinite.

Reasons for seeking consent may include work commitments elsewhere, caregiving responsibilities, travel plans, or the approaching conclusion of your current mortgage product.

Your lender may withhold consent to let if:

  • The proposed rental duration is deemed excessively long.
  • The anticipated monthly rental income falls below their satisfaction.
  • They are unconvinced that your decision to let the property is a genuine change in circumstances, suspecting that your original intention was to let the property, securing a residential mortgage for better terms.
  • A history of mortgage arrears exists.

In cases where consent to-let is denied, an alternative option is pursuing a buy-to-let remortgage with the process detailed in the following section:

When consent is granted, there are often no restrictions on the tenant; however, the lender may stipulate conditions regarding the type and duration of the tenancy, such as an assured shorthold tenancy agreement typically spanning 6 or 12 months.

It is advisable to engage in a conversation with your current mortgage lender to discuss your plans and inquire about the possibility of obtaining consent to let. Note that some lenders may impose an administrative fee, usually around £75, for granting consent, and they might also revise the interest rate for the duration of the tenancy.

Conclusion

In conclusion, remortgaging from residential to buy-to-let is a strategic move that demands careful consideration. By understanding the nuances of the process, evaluating personal circumstances, and making informed decisions, individuals can unlock the potential of their properties and enter the dynamic world of buy-to-let investing.

Embark on your journey to secure a mortgage with confidence by choosing Your Mortgage Experts as your trusted consulting services partner. With Your Mortgage Experts, you’re not just securing a mortgage, you’re partnering with a dedicated team committed to your financial well-being.

Is remortgaging for buy-to-let a common practice?

While not as common as residential remortgaging, it is gaining popularity among individuals seeking to enter the property investment market.

Can I remortgage if my property has depreciated in value?

Yes, it is possible, but the terms offered may be influenced by the property's current market value.

What are the tax advantages of buy-to-let remortgaging?

Tax advantages may include deductible mortgage interest and certain property-related expenses.

How long does the buy-to-let remortgaging process typically take?

The timeline varies, but generally takes several weeks to a few months, depending on individual circumstances and the lender.

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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