Changing to a buy to let mortgage (5 key tips)

Changing from a residential mortgage to a buy to let mortgage

Many homeowners have considered if it is possible to change their residential mortgage to a buy to let mortgage. This is indeed possible but whether you will be able to switch from a residential mortgage to a buy to let mortgage will heavily depend on your mortgage affordability and your current mortgage lender giving you consent to change your mortgage to a buy to let mortgage.

Switching from a residential mortgage to a buy to let mortgage is very common and you may be able to do this with your current mortgage lender. If your current mortgage lender declines you the ability to switch from a residential mortgage to a buy to let mortgage then you may want to consider getting a remortgage to a new mortgage lender who may be willing to change your residential mortgage to a buy to let mortgage.

You should remember that when changing your mortgage to a buy to let mortgage you may have to pay any early repayment charges due on your current mortgage.

What the mortgage lender will consider before changing your mortgage to a buy to let mortgage

The mortgage lender will usually confirm the below details when deciding if to change your mortgage to a buy to let mortgage:

• Your future living plans
• Your intentions with your current property
• The type of mortgage you have
• Your mortgage agreement
• The total number of properties or mortgages you have

How to switch your current mortgage to a buy to let mortgage

If you are considering changing your current mortgage to a buy to let mortgage you may want to consider what the implications are.

Residential mortgages are regulated by the financial conduct authority and if you are mis-sold the mortgage you may be due compensation from the financial services compensation scheme but with a buy to let mortgage which is mostly unregulated, you may not be due any compensation.

Note: Consumer buy to let mortgages are regulated.

Buy to let mortgages are also commercial mortgages which have a commercial purpose: to make a rental return. This is significantly different from your residential mortgage which simply focuses on getting a mortgage for you to reside in as your main residence.

This means you may want to take more consideration when getting a buy to let mortgage to ensure you get the mortgage which offers you the best returns available.

A buy to let mortgage broker may be able to provide you advice on how to change to a buy to let mortgage from a residential mortgage.

If you choose to change from a residential mortgage to a buy to let mortgage then it may be relevant to consider taking advice from an independent whole of market mortgage broker than simply changing from a residential mortgage to a buy to let mortgage with your current mortgage lender.

Can you change to a buy to let mortgage with bad credit?

Changing your residential mortgage to a buy to let mortgage may be possible with bad credit. Most mortgage lenders prefer borrowers with good credit so it may be worth trying to build credit rather than applying to change your mortgage to a buy to let mortgage with bad credit.

If you want to change your mortgage to a buy to let mortgage and you have bad credit, the mortgage lender may expect you have enough equity in your property or to be ready to increase the equity you have in your property by putting down a bigger mortgage deposit.

Bad credit may include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home reposession

Changing to a buy to let mortgage to buy a new home

Some borrowers may want to change their mortgage to a buy to let mortgage and then proceed to buy another property with a residential mortgage.

There are specific mortgages known as let to buy mortgages which cater for this.

With a let to buy mortgage your current mortgage lender will change your current residential mortgage to a buy to let mortgage where the monthly mortgage repayments are covered by the rent gained from the tenants. The mortgage lender will then allow you to use the equity you have in this property as a mortgage deposit for you to buy another property on a residential mortgage.

You can then choose to sell your buy to let property when you see fit.

A let to buy mortgage can be very helpful when you want to buy a new property but cant sufficiently extract the equity from your current property due to the fact that the property market has slipped and the property is now worth less than you paid. In this case, you can get a let to buy mortgage and wait for the market to gain some traction before selling.

Let to buy mortgages may be considered risky and not all mortgage lenders may offer one so you may have to first remortgage to a mortgage lender who is willing to offer you a let to buy mortgage.

The reason why let to by mortgages may be considered risky is because if the current tenants in your property stop making their rent payments you may be in financial as you may not be able to make your monthly mortgage repayments on the buy to let mortgage and this could leave you at risk of a home repossession.

If you are unable to get a let to buy mortgage but need to buy a new property quickly then you may want to consider a bridging mortgage or bridging loan.

You may want to seek mortgage advice before doing this as bridging loans can be very expensive and you may only want to use one as long as you are certain you can repay it back within 12 months.

Can I change my mortgage to a buy to let mortgage and then rent a house?

Some mortgage lenders may allow you to change your residential mortgage to a buy to let mortgage and then begin renting a property to live in. Most mortgage lenders prefer to offer buy to let mortgages to borrowers who already have residential mortgages.

Most mortgage lenders may not allow you to change your mortgage to a buy to let mortgage in this manner if you won’t have enough income to cover any prolonged period when a tenant defaults on their rent payment.

Some mortgage lenders may not allow you to change to a buy to let mortgage in this manner as they fear that you may simply change to a buy to let mortgage and then begin living in the property.

Most buy to let mortgage lenders will also expect that the rental income from the buy to let property will cover 120 to 150% of the current monthly mortgage repayments.

Consent to let mortgages

If you simply want to buy a new property but are unable to change to a buy to let mortgage you may be able to ask your current residential mortgage lender for a consent to let mortgage.

With this, the residential mortgage lender will allow you to let the property out for a particular period.

It may be hard for you to get another residential mortgage with another mortgage lender as most mortgage lenders have a cap on the total amount of residential mortgage you could have.

Consent to let mortgages may be a good option if you are currently on a good mortgage rate and are unable to port your mortgage. You will essentially be renting a property out with a consent to let mortgage but remember your mortgage lender may not consent and in this case, you may simply need to remortgage to a different mortgage lender.

When looking to change to a buy to let mortgage you may want to consider using an independent whole of market mortgage broker to assist you.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer

for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.