CHANGING YOUR MORTGAGE TO BUY TO LET | February 2024
‍Change mortgage to buy to let

February 2024

Change Mortgage To Buy To Let In February 2024

What is a buy to let mortgage?

Unlike residential mortgages, a buy to let mortgage is a loan that is intended for individuals who want to buy a property in order to rent it out (sometimes called ‘btl mortgages’) but are unable to afford to buy the property outright. 

The requirements for these sorts of loans are generally more stringent than those for residential mortgages, and the interest rates are frequently higher as well.

The buy to let agreement is gaining in popularity among individuals who wish to put their money into real estate or rented accommodation. 

There are several things to consider about before applying for a buy to let loan, such as the maximum amount you can borrow, the associated risks, and whether or not you qualify.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

How do buy to let mortgages work?

The main change from a residential mortgage to a buy to let mortgage is that, with the latter, the property is purchased with the intention of renting it out rather than living in it yourself. This means that there are a few additional criteria that need to be met in order for you to be eligible for a buy to let loan.

Some mortgage providers lending buy to let mortgage deals will demand a minimum annual income of around £25,000 to apply for a buy to let loan. This is because they believe that having this figure shows that you will be able to make monthly loan payments even if your property does not produce any rental income. 

Other criteria you will need to meet include having a good credit score and a deposit of at least 25% of the property’s value.

The interest rate you’ll be offered on a buy to let loan will be determined by a number of elements, including your personal situation and the mortgage broker you pick. Before deciding, it’s critical to examine rates from numerous mortgage lenders to get the best mortgage deal.

Why would I need to change my mortgage from a residential mortgage to a buy to let one?

There are a variety of reasons why you may want to switch from a residential mortgage to buy to let mortgage. Perhaps you’ve inherited a residential property and wish to rent it out, or perhaps you’ve moved in with a partner and therefore no longer require your own home. 

Alternatively, you may have chosen to invest in real estate as a hobby or as an alternative source of income.

Many people use this as a chance to release equity from their property when they change their mortgage to a buy to let one and use the money released as a deposit for a new home.

It’s possible to switch with your current mortgage provider or change mortgage types with a new lender.

There are a lot of factors to consider about before making the switch, including whether you can afford the higher interest rates and if you’re comfortable taking on even more of your own risk with buy to let mortgages.

Is it illegal to let a property if you don’t have a buy to let mortgage?

If you own a property that you’re planning to rent out, then it is technically illegal to do so without having a buy to let loan in place. 

This is because your home insurance policy will likely be invalidated if you don’t have the right type of mortgage, leaving you at risk of being unable to claim for any damage that may occur.

You will also normally need permission from your mortgage lender to let out the property.

What if I just want to rent out my home for a short period of time?

If you only want to rent out your property for a brief period of time (for example, if you’re planning on moving abroad for a year or two), it may be possible to get a ‘temporary let’ mortgage. 

This is a kind of mortgage that is intended for individuals who wish to let out their home on a short-term basis.

How does changing to a buy to let mortgage work?

How much can you borrow for buy to let mortgages?

The amount you may borrow with a buy to let loan is determined by a variety of criteria, including the mortgage lender you pick and your personal circumstances (e.g. approximate annual income, your current residential mortgage, the value of the residential property). Most lenders, however, will typically lend up to 75% of the property’s value.

This means that if you’re looking to purchase a £200,000 property, you would need to have a deposit of at least £50,000 in order to be eligible for a mortgage.

It’s important to remember that the amount you can borrow is not the same as the amount you can afford to repay. When considering how much to borrow, it’s important to take into account all of the associated costs involved in being a landlord, e.g. maintenance, repairs, insurance, and so on.

can i change my mortgage to a buy to let

What eligibility criteria do you need to meet?

In order to be eligible for a buy to let loan, there are a few lender criteria that you will need to meet, even if you stick with your current mortgage lender. Firstly, you will need to prove that any buy to let properties are going to be used as an investment and not as your main home and that you have a good mortgage track record, i.e. no history of mortgage arrears.

This usually means providing evidence that the rent from the property will cover the mortgage payments, as well as any other associated costs. For example, a mortgage broker will likely require you to show that the rental income is at least 125% of the mortgage repayments.

Other eligibility criteria can vary depending on the mortgage lender but may include factors such as your age, employment status, and credit history. It’s always best to consult a mortgage advisor or online mortgage advisor for specialist finance advice before you apply for a loan to ensure that you meet all of the necessary criteria.

"Unlike residential mortgages, a buy to let mortgage is a loan that is intended for individuals who want to buy a property in order to rent it out (sometimes called ‘btl mortgages’) but are unable to afford to buy the property outright."

How is my property valued if I switch my mortgage rate?

When you switch your mortgage rate, your property will be valued by the mortgage broker in order to decide how much they are willing to lend you. This valuation is usually based on the current market value of the property and not the purchase price.

The valuation will take into account a number of factors, such as the location of the property, its condition, and any improvements that have been made. The lender will also take into account the current market conditions and any recent trends.

It’s important to remember, even if you have paid off a significant amount of your residential mortgage, your property may not be worth as much as you think. This is because house prices can go down as well as up, and there is always a risk that you could end up in negative equity.

convert mortgage to buy to let

How will my Loan to Value (LTV) be calculated if I have more than one mortgage?

The way your LTV is calculated will depend on the type of mortgage you have.

If you have a fixed-rate mortgage, the LTV is the outstanding loan amount divided by the original value of the property.

If you have a variable mortgage, the LTV is the outstanding loan amount divided by the value of the current property.

Will I need to provide documentation in order to switch to a new rate?

Yes, you will need to provide some documents in order to switch your mortgage rate. These can vary depending on the lender, but will typically include proof of income, proof of identity, and proof of address.

If you’re applying for a buy to let loan, you’ll have to submit a copy of your existing mortgage agreement, as well as any equity in the current property. You will also need to provide evidence that the rental income is enough to meet all of your monthly payments if you are changing to a buy to let loan.

What about switching to buy to let with a let to buy mortgage?

Let to buy is the term for renting out your present property in order to purchase another. This entails changing your existing mortgage to a buy-to-let arrangement, as previously stated, releasing equity as a deposit and then getting a new residential mortgage.

If you have a let to buy mortgage, you can usually switch to a buy to let loan without any penalties. However, you will need to meet the criteria set by your lender, which may include having a certain amount of equity in your property.

converting residential mortgage to buy to let

Why does the FCA not regulate buy to let mortgages?

The Financial Conduct Authority (FCA) does not regulate buy to let mortgages. This is because they are classed as commercial loans and are therefore not subject to the same rules and regulations.

This does not mean that you can’t get a good deal on a buy to let loan, but it does mean that you need to be extra diligent when shopping around. It’s always best to speak to a mortgage advisor or online mortgage advisor (although some mortgage online advice does not officially constitute financial advice) before applying for a loan so that you can ensure you are getting the best possible deal.

What are the tax implications of switching to a buy to let mortgage?

There are a few things you need to consider from a tax perspective when switching from residential mortgage to buy to let mortgage. Firstly, you need to be aware that the interest on a buy to let remortgage is not deductible from income tax.

This means that you will need to factor in the cost of the interest when calculating your rental income. Secondly, any profits that you make from your rental property will be subject to capital gains tax.

This is a tax that is payable on the profit that you make when you sell a property. The rate of capital gains tax will vary depending on your individual circumstances but is typically 18% or 28%.

How do I find the best deal on a buy to let mortgage?

It’s important to search the entire market for the best deal. The best way to find the best buy to let mortgage rates is to seek market financial advisers or a mortgage provider who can provide mortgage advice. All the advisors will be able to search the market for you and find a deal that meets your individual needs: your current lender might not have the best rate for a new property.

If you’re looking for a mortgage loan, be sure to inquire about any costs or charges that may be incurred. These can differ depending on the lender, so obtaining an accurate sense of all expenditures before making a selection is essential.

converting mortgage to buy to let

What are the risks of taking out a buy to let mortgage?

Investing in buy to let property can be a risky business, and there are a number of things that you will need to accept liability for.

As with any type of investment, there are always risks associated with buy to let mortgages. 

The most obvious risk is that the new property may not be rented out or may not be rented out for as much as you had hoped. This could leave you in a difficult financial situation, as you would still be responsible for making the mortgage repayments.

Another factor to consider is that, as a landlord, you will be responsible for any damage done to the property. This may include tenants’ unintentional destruction of the premises or normal wear and tear over time. To protect yourself against these dangers, you’ll need adequate insurance.

There’s also the possibility that the value of your property could plummet, resulting in negative equity.

Can I change my mind once I’ve decided to switch to a new mortgage deal?

Once you’ve decided to switch to a buy to let product, you will usually be locked into the contract for a set period of time. This is typically between 2-5 years, although it can be longer or shorter depending on the mortgage brokers.

During this time, you will usually be unable to switch to another mortgage deal without incurring penalties. These could include early repayment charges, which could amount to several thousand pounds.

What things should I remember when considering switching to a buy to let mortgage?

changing your mortgage to buy to let

Plan for times when there’s no rent coming in

It’s important to plan for a potential time when there is no rent coming in, for example, if your property is unoccupied for a period of time or if you have void periods between tenants. You should make sure you have enough money set aside to cover the mortgage payments during these times.

You may also want to consider taking out landlord insurance, which can help to protect you financially if your property is damaged or if your tenant fails to pay the rent.

Don’t rely on selling the new property to repay the mortgage

You shouldn’t rely on selling the property to repay the mortgage: the property market can be unpredictable, and there’s no guarantee that you’ll be able to sell the property for the price you want.

It’s important to have a mortgage payment plan in place so that you’re not left struggling to make the mortgage repayments if the worst happens, and you’re unable to sell the property.

The cost of mortgage conversion

There may be a cost associated with converting your existing residential mortgage, so it’s important to factor this in when you’re considering the switch.

If you switch to a new deal before your current deal expires, you should discuss any early repayment costs with your lender.

You’ll need a bigger deposit

When you’re taking out a buy to let loan, you’ll usually need a larger deposit than you would for a residential mortgage. This is because these mortgages are considered to be higher risk by mortgage lenders.

You may also need to prove that you have enough money to cover the mortgage monthly payments for a period of time if the property is unoccupied.

Have realistic expectations

It’s important to have realistic expectations when you’re considering switching from a residential mortgage. Remember, the property is an investment, so there’s no guarantee that it will increase in value over time.

mortgage to buy to let

Could ‘consent to let’ be an alternative?

If you’re thinking about switching from a residential mortgage, but you’re not sure if it’s the right decision for you, you could consider taking out a consent to let. Consent to let guards you against committing mortgage fraud.

Consent to let is where you get permission from your lender to let out your property without having to take out a new mortgage. The advantage of consent to let is that it gives you the flexibility to try out buy-to-let without fully committing to it. Consent to let, therefore, can be a good option if you’re not sure if buy-to-let is right for you.

You should also be aware that some lenders will only offer consent to let for a limited period of time, after which you’ll need to switch to a buy to let loan.

What about transferring a buy to let mortgage to residential?

It is possible to transfer a buy to let mortgage to a residential mortgage, although this isn’t always the best option.

You may need to pay an early repayment charge if you switch deals before your current deal comes to an end, and you may also need to prove that you can afford the mortgage repayments if the property is not occupied.

It’s also important to remember that, as a buy to let investor, you may be liable for capital gains tax when you sell the property. Remember, a buy to let property is an investment, so there’s no guarantee that it will increase in value over time.

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – [email protected]

Frequently Asked Questions

How much can you borrow for buy to let mortgages?

The amount you may borrow with a buy to let loan is determined by a variety of criteria, including the mortgage lender you pick and your personal circumstances (e.g. approximate annual income, your current residential mortgage, the value of the residential property). Most lenders, however, will typically lend up to 75% of the property’s value.

What eligibility criteria do you need to meet?

In order to be eligible for a buy to let loan, there are a few lender criteria that you will need to meet, even if you stick with your current mortgage lender. Firstly, you will need to prove that any buy to let properties are going to be used as an investment and not as your main home and that you have a good mortgage track record, i.e. no history of mortgage arrears.

Will I need to provide documentation in order to switch to a new rate?

Yes, you will need to provide some documents in order to switch your mortgage rate. These can vary depending on the lender, but will typically include proof of income, proof of identity, and proof of address.

What are the tax implications of switching to a buy to let mortgage?

There are a few things you need to consider from a tax perspective when switching from residential mortgage to buy to let mortgage. Firstly, you need to be aware that the interest on a buy to let remortgage is not deductible from income tax.

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Disclaimer: Please be aware that this site is no longer under active management. As a result, we cannot assure the accuracy or relevance of the content provided. Visitors should use their discretion and consider the potential for outdated or inaccurate information before relying on any material found here.