Changing Your Mortgage to Buy to Let
It may be that you’ve been living in your property for some time and paying off your residential mortgage monthly. Now that you are moving out and want to rent it out, it’s not simply a case of finding a tenant, drawing up a Tenancy Agreement, and getting them to pay the mortgage every month while you rent elsewhere.
No, that’s because there is the whole question of whether or not your residential mortgage will be enough. Most mortgage companies want their clients to switch to a buy to let mortgage in this type of situation. And certainly, if you rented out your property using a residential mortgage without telling your lender, then your buildings insurance would most likely be void – something you definitely want to avoid in case of floor or fire! And, if you have landlord insurance, you wouldn’t be covered for future void periods either.
It’s not always easy to get a buy to let mortgage from a high street lender, such as banks and building societies. Nine times out of 10 a buy to let mortgage will be via a specialist mortgage broker and lender.
Is a Buy to Let Mortgage More Expensive?
A landlord mortgage does tend to have a higher rate of interest repayment. There is usually a larger deposit involved too. However, the fact you have been paying off a residential mortgage means you will probably have quite a bit of equity which can be transferred to your new buy to let mortgage in lieu of a deposit.
Your mortgage repayments on a buy to let mortgage are less too since for most you only pay the mortgage interest – the idea being you will have built up enough equity to pay off a fair chunk of the capital side over a number of years.
There is only one way that you can rent out your property without having to get a buy to let mortgage and that is if you already own it outright. And very few of us are in that fortunate position!
Is It Illegal to Rent a House on a Residential Mortgage?
Well, apart your insurance being null and void should you try to claim for a buy to let property on a residential mortgage, there are other penalties you could suffer. For instance, you could actually be committing mortgage fraud. If you’re the type of unwitting landlord ie you have to rent out your property because you’ve moved location and can’t sell right now, then the judge and mortgage company may look leniently at you. However, landlords who intentionally buy a rental property using a residential mortgage will be treated far more harshly. And yes, they do exist!
When Should I Tell My Lender I’m Renting the Property Out?
You should let your lender know your residential mortgage will no longer be valid the minute you decide to let the property out. That way you can arrange for a buy to let mortgage to be in place when your first tenant moves in. That way you won’t be breaking any laws, your property will be protected and you should be able to sleep easier at night.
Hopefully your current lender will have a buy to let mortgage product they can offer you. You may have to pay a fee for switching, but it’s better than not switching and being found out. In such circumstances ie being found with the wrong mortgage, they may ask you to pay off the entire sum at once.
If they don’t offer a buy to let mortgage product then they should at least be able to put you in touch with a good mortgage broker.
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As a landlord you will gain passive monthly rental income from your buy to let and capital appreciation as the years flit past. And it’s exactly this capital appreciation ...
February 12, 2021
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