It is quite common for people to change from a residential mortgage to a buy to let one. In both cases, the rules are similar, but buy to let mortgages do come with some key differences that you have to take into account and fully understand.
First of all, it is worth mentioning that you will need your lender’s consent if you want to switch to a buy to let mortgage. If your lender doesn’t approve this, then you have the option to re-mortgage with a new lender.
Let’s take a look at the things you will have to do to change your mortgage, as well as at the things you will have to take into account before and after doing so.
What Is a Buy to Let Mortgage?
First, let’s start with the essentials – namely, what exactly is a buy to let mortgage and why would landlords choose this instead of a residential one?
Just as its naming implies, buy to let mortgages are specially designed for landlords or borrowers that wish to buy a property and then rent it out. Naturally, the rent that you are likely to charge on the property after you buy it will directly influence the amount the lender will offer you.
Moreover, buy to let loans usually come with a higher interest rate than usual, besides the also steeper arrangement and booking fees. You will have to take this information into account and make sure that you have realistic expectations and understand what a buy to let mortgage implies.
How to get a Buy to Let Mortgage?
Even though getting a buy to let mortgage may sound easy, we assure you that it is not. You shouldn’t rush such a decision. So, make sure that you take every possible aspect into consideration.
Obviously, it is strongly recommended that you consult a specialist (Property Finance Partners) if you are unsure about getting a buy to let mortgage or changing your current mortgage.
When it comes to this type of mortgage, keep in mind that you will most likely want to improve/maximise your rental income.
In this respect, if you simply change your residential mortgage, for example, with your current lender, they will show you their rates only. Doing so will limit you to one single lender – you will not have the option to browse mortgages and choose the best one for you.
In the following lines, we’ll showcase the two scenarios that might make you want to change your current mortgage to a buy to let one.
Buying a new property and changing your current home to a buy to let
Also referred to as a let to buy mortgage, the practice of moving into a new property and switching the mortgage of your old one to a buy to let is quite common. After all, it seems like the natural thing to do for most people.
Instead of selling their old home, they choose to rent it out and get some rental income out of it as well. Moreover, you can re-mortgage your current home in order to fund the purchase of the new property.
The rental income that comes with the buy to let mortgage of your old home can very well be used to support your new residential mortgage.
A buy to let mortgage is also preferred when you can’t seem to sell your current home for the price you think it’s worth. If you have overpaid for it, then you will most likely want to hold the property and wait until its value is high enough.
Moving into a rented property and changing your current home to a buy to let
It may be harder for you to change your mortgage to a buy to let if you go with this option. While there are various available lenders for this practice, not every one of them will be confident enough and will consider changing your mortgage.
The main reason for their lack of confidence is that the buy to let mortgages are usually given to current homeowners that have at least one residential mortgage. Obviously, the lenders also have to take into account the various risks.
For example, if the tenants of your now-buy-to-let property default on paying the rent, you will be put in a difficult financial situation. Moreover, even the rent of the property you move into may be higher than a mortgage repayment. In short, if something goes wrong, the whole scheme collapses.
Lenders understand these risks and are likely to decline this type of switch.
How Much Can I Borrow on a Buy to Let Mortgage?
The amount you can borrow on a let to buy mortgage depends on several factors that have to be carefully taken into account. However, the biggest influence comes from the amount of rental income that you expect to receive.
Usually, lenders need this income to be around 25 to 30% higher than your mortgage payment. Naturally, you will also have to take into account the value of your current property, the existing mortgage balance, as well as your income, in some cases.
Naturally, we recommend you consult with specialists or talk with local letting agents in order to find out exactly how much you could borrow on a buy to let mortgage. If you wish to change your mortgage, it is important that you have taken every risk and factor into account before applying for a loan or a new mortgage.
Long story short, you have to be careful and explore your options before considering changing your mortgage to buy to let. While it may seem like the right thing to do for you, you will have to make sure that the new mortgage setup does not put you in a difficult financial situation.
Also, keep in mind that some lenders are not so keen when it comes to changing your current mortgage – especially if the risk they are supposed to take is high!
For more information on buy to let mortgages contact property finance partners. Call 020 3393 9277 or email [email protected]