The term ‘Buy to Let Mortgage’ is very common the UK property industry – and you may have a few questions around this topic.
For example – what is a Buy to Let Mortgage? And can you change a Buy to Let Mortgage to Residential?
Read on for an answer to these important questions.
What is a Buy to Let Mortgage?
A Buy to Let a property is one that is purchased specifically to rent out to tenants. A Buy to Let mortgage is simply an agreement with a bank or building society to loan money to the landlord or investor specifically for this purpose, rather than a residential mortgage in which the owner lives in the property.
The UK has had dedicated Buy to Let mortgages since September 1996. Unless you are a cash buyer, if you purchase a residential property to rent Financial Conduct Authority (FCA) rules mean you must have one.
Most Buy to Let mortgages are interest only meaning that the owner pays off only the loan interest rather than the principle or the original capital loaned. Because Buy to Let mortgages are viewed by mortgage providers as being riskier, they usually incur higher interest rates as well as higher upfront arrangement fees and initial deposits.
Can I Change My Buy to Let Mortgage to Residential?
It is possible to switch from a Buy to Let mortgage to a residential mortgage if the situation has changed, if the owner/investor plans to move in temporarily or permanently or if they have other plans which mean the property will no longer be commercial let.
Indeed, the mortgage holder must inform the mortgage provider if they intend cease renting it out or else it is considered mortgage fraud and a breach of contract. This is the case however long the owner/investor intends to move in, even if it is just for a night.
If the mortgage holder plans to move in permanently they will need to switch to a traditional home-owner mortgage. That will require an assessment of their financial circumstances, the value of the property, the equity they held and the other factors involved in getting a mortgage. If they plan to move in temporarily, it may be possible to remain on the existing Buy to Let mortgage subject to paying a reversion rate, or to re-mortgage. It is important to engage with the mortgage provider at an early stage to explore options in either scenario.
Why would someone want to switch?
Someone may want to switch from a Buy to Let to a residential mortgage if they intend to move into the property or stop renting it out for another reason. Usually they will do so either with the intention of residing in it permanently or residing in it temporarily. They may be other reasons too, for example it may be that a family member such as a child or parent plans to move into the property which mean it will no longer be commercially let.
Typical situations in which the owner/investor may decide to move into the property temporarily or permanently include:
- Family situation – a change in the family set-up for example the arrival of children which requires a bigger property or a separation or divorce when one party moves out and needs a new place to live. It may also be the case that the property was purchased with the intention of letting a child living in it when they reach adulthood or go to university or when an older parent/s needs a more manageable home and that time has now come;
- Downsizing – a smaller property is sought once children have left home of there have been other material changes to the space needs of the owner/investor;
- Returning home – in situations where the owner/investor may have been working elsewhere either within or outside of the UK or travelling/holidaying overseas for an extended period they may want to move into the property when they are back;
- New property purchase – the owner/investor is buying a new home and requires somewhere to live in the short-term before they can move into the property. In this situation they will only more in on a temporary basis before seeking to re-let the property.
What steps are involved in switching?
Switching from a Buy to Let to a residential mortgage will require a new lending agreement so it is necessary to speak to your mortgage provider to get their approval. It is wise to shop around the market to see if better deals are available. Effectively a new mortgage agreement will be needed and this will require the usual checks on financial circumstances, the subject property, identification and the other requirements that are involved.
Not all Buy to Let lenders will permit a mortgaging to a residential mortgage can the process is more complex and time consuming with some over than others. It is advisable to use a mortgage broker can assist given they have market expertise about the products available and how suitable these may be to your unique circumstances.
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