Converting a Residential Mortgage to Buy-to-Let: What You Need to Know

Item: Converting a Residential Mortgage to Buy-to-Let: What You Need to Know
Author: Rizwan Moledina

20th July 2024

If you currently have a regular residential mortgage on your home, are moving out and want to let the existing one out, then you may be wondering if changing to a buy to let mortgage is possible. The answer is there are two main options. One is to obtain consent from your current lender to let your property out, or re-mortgage to a buy-to-let loan.

Guaranteed rent Landlords Letting Property Investment

Many people decide to let out their existing property when moving out. Whether you are moving in with a partner, relocating for work, temporarily moving in with a relative who needs care, going travelling or simply buying a new home and wish to retain the existing one as an income stream, it is important to carefully consider your options and, ideally, take unbiased advice from an independent mortgage specialist.

How does consent to let work?

If you obtain consent to let from your existing residential mortgage lender, you will not be re-mortgaging. You will stay on the same product with the same lender, although there may be some new terms and conditions to adhere to.

Consent is required if you decide to rent a property out that has an existing residential mortgage on it, because residential mortgages are fully regulated by the Financial Conduct Authority (FCA). Buy-to-let mortgages however are not regulated, which means you cannot let a residential property without permission. Otherwise you will risk breaching the terms of your mortgage.

Consent to let involves obtaining permission from your lender to let your home for a set period of time. It differs from a buy-to-let mortgage, where there is a clear intention to rent out a property when the loan is taken out.

Obtaining consent to let rather than changing a mortgage to buy to let is usually the preferred option when you intend to move back to the property at some stage, or if you only have a short period left on the mortgage term.

If consent to let is granted, there aren’t usually any restrictions on who you can let the property to, but there will likely be particular requirements as to the type and length of the tenancy. An assured shorthold tenancy will usually be required and the acceptable term is normally six to twelve months.

A charge may be made for the consent, and you may find that your interest rate is changed for the duration of the tenancy.

It is important to bear in mind that whilst you have a right to ask your lender for permission to let your property, they may not necessarily grant it. This might be the case if you are asking to rent the property out for what they deem to long a period; the anticipated monthly rental income isn’t sufficient; the lender is not satisfied that your intention to let the property is based on genuine circumstances, or you have a history of mortgage arrears.

If the lender is not forthcoming with consent to let, then your alternative option is changing to a buy to let mortgage.

How does changing to a buy-to-let mortgage work?

When you change to a buy-to-let mortgage from a residential mortgage, you will be assessed for affordability in a different way. The whole process involves re-mortgaging to a completely new product, which may even be with a different lender.

Again, the importance of taking independent advice cannot be stressed enough, as there may be products on the market that are more beneficial for you that you would otherwise not be aware of if you only took advice from your existing lender.

Going back to the affordability assessment, for a buy-to-let mortgage, lenders use a rental income calculation and loan to value (LTV) to work out how much you could potentially earn from your current property. Most lenders tends to cap the LTV rate, and set a requirement that the rental income is a minimum percentage of the monthly interest-only mortgage payment. These figures will vary from lender to lender, and from product to product, so it is important to thoroughly assess what is available and take time to compare the benefits and features.

Is it possible to let out my home and buy another property?

If you are changing to a buy to let mortgage, you could potentially release equity from the existing property and use the funds released to put a deposit on another property. So you have a regular residential mortgage on the new property, and a buy-to-let mortgage on the current one. This is known as ‘let to buy’.

Again, it is essential that you take independent advice so that you can be sure you are selecting the right mortgage products to suit your needs and individual circumstances.

Want to make your buy-to-let investment hands-off, and enjoy guaranteed rent at the same time?

However you decide to fund your buy-to-let, if you’d rather take a back seat when renting out your property, why not take a look at the all-encompassing homes2let property management service, which comes complete with guaranteed rent?

Not only will we take care of all the day to day maintenance, co-ordinate all the necessary property inspections, source and reference tenants, we will also guarantee your rent every month, even when the property is untenanted.

To find out more about how we can make assist with your buy-to-let investment, please get in touch with our helpful team.

Rizwan Moledina

Riz is the founder of homes2let and has been in real estate for over twenty years. He has a background in economics and is a real estate developer and buy to let investor.

Free, no obligation 15min call with Riz – Book Now

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