Can I Change My Residential Mortgage to Buy-to-Let?
Answered on 18 November 2019 by Nick Morrey
I currently have a normal residential mortgage on my home in the UK. I’m moving into a new property and would like to let my existing one out. Will my lender allow me to convert my mortgage to a buy-to-let?
There are 2 main options when you want to let out a property with a residential mortgage on it – either you obtain consent to let from your current lender, or you remortgage onto a buy-to-let product. What suits you best will depend on why you want to let out your property and for how long.
People often want to let out their property because:
- They’re moving into a new property with a partner
- They’re moving area because of work
- They’re travelling
- They’re going to be away from their current home for a notable period of time
- They want to purchase a new home
Whether you opt for consent to let or a buy-to-let remortgage, changing a residential mortgage to a buy-to-let isn’t quite the same as a normal residential remortgage.
This is because:
- You don’t remortgage at all with consent to let. The whole point is that you stay on the same product with the same lender – although your lender may introduce some new terms and conditions
- Buy-to-let mortgages involve a different method of assessing your affordability – i.e. what you can afford in monthly payments - from residential mortgages
We go through when consent to let is possible, how it works, when changing your mortgage to buy-to-let is more suitable and how the lender assesses your affordability, below.
You can also find more information on buy-to-lets in our buy-to-let mortgage guide.
Do I Need Consent to Let from My Mortgage Lender?
When you rent out a property with an existing residential mortgage on it, you need to obtain consent to let from your lender. This is because residential mortgages are fully regulated by the FCA (Financial Conduct Authority) but buy-to-let mortgages are not regulated, so you can’t let out a residential property without their permission or you risk breaching the terms of your mortgage.
Consent to let is where you obtain permission from your lender to let your home, usually for 6 – 12 months. It’s different from a buy-to-let mortgage, where the intention to lease a property is made clear at the time of the application.
You need consent to let your residential property from your lender, but your lender doesn’t have to grant it.
You would typically require consent to let, rather than a buy-to-let remortgage, if you intended on moving back to the property at some point – i.e. you weren’t letting it out indefinitely. This could be because your work demands you spend some time elsewhere for a period, you’re looking after a relative, you’re travelling, you’re nearing the end of your current mortgage product, etc.
Your lender may not grant consent to let if:
- The period for which you want to rent out your property is too long
- The expected monthly rental income isn’t enough
- They’re not satisfied that your intention to let your property has come about through a genuine change in circumstances – i.e. it appears your intention was always to let your property and that you applied for a residential mortgage to secure a better mortgage deal
- You have a history of mortgage arrears
If your lender doesn’t grant consent to let, then your other option would be a buy-to-let remortgage – we explain how this works in the next section.
If consent is granted, they often have no restrictions on who the property is let to, but they’ll likely have requirements regarding the type and length of the tenancy – e.g. an assured shorthold tenancy agreement for typically 6 or 12 months.
Speak to your current mortgage lender about what you’d like to do and see if consent to let is something they offer. Your lender may charge you an admin fee – typically around £75 - for the consent to let. They may also revise the rate of interest you’re charged for the duration of the tenancy.
Remortgaging to a Buy-to-Let
If your lender doesn’t grant consent to let, or it’s not suitable for your situation, you can switch the mortgage on your home to a buy-to-let mortgage.
To change your residential mortgage to a buy-to-let one you would remortgage onto a completely new product, potentially with a new lender.
For buy-to-let mortgages, lenders use a rental income calculation and LTV (loan-to-value) to assess how much you could raise on your current property. The vast majority of lenders cap the LTV at 75% and require that the rental income is at least 145% of the monthly interest-only mortgage payment at a “stress test” rate of 5%.
You can work out the minimum rental income you would need by using our buy-to-let rent calculator. The lender will also need to know how much you’re looking to borrow for the new property, to ensure that you meet their affordability criteria.
Find out how much you could borrow with our buy-to-let mortgage calculator.
Can I Let My Home and Buy Another Property?
Many people take the opportunity 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. A residential mortgage is arranged on the new property alongside the buy-to-let mortgage on your current property. This process is called let to buy.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.