Change Mortgage To Buy to Let
Change Mortgage to Buy to Let
If you’ve decided for whatever reason that you no longer need or want to live in your residential home, and wish to change your existing mortgage to a buy to let mortgage; you might be wondering what options are available for you. Many people decide to pursue this option after moving in with a partner, to live overseas or moving location for work. So if you decide that you want to start letting out your residential home, the good news is that it’s definitely possible.
Whether your mortgage provider lets you change your existing mortgage into a buy to let mortgage will depend on your circumstances. Every lender is different and each has a different set of lending criteria and specific requirements. One major factor they will take into consideration is if you are buying a new property to live in, or whether you are moving into a rented property.
If you are buying a new property to live in
If you are a customer who has the capacity to take on two mortgages and wish to rent out your residential property; there are two ways in which you can do this.
1. Let to buy mortgage – This involves buying a new property to live in on a new main residential mortgage, whilst renting out your old property by switching it to a buy to let. This will also allow you to raise cash on your current property to fund the deposit on the new purchase if you have enough equity available.
2. Consent to let mortgage – If your existing mortgage is still in its initial period, it may be worth first contacting your lender and seeing if it is possible for a consent to let agreement. This will allow you to let out the property with your existing mortgage until the end of its initial period. There are costs involved with getting consent to let, although it may work out cheaper than remortgaging in the midterm.
Buy to let tax relief rules
If you wish to rent out your existing residential property, you should be aware of the changes to the tax rules surrounding landlords and their buy to let properties.
From 2017, landlords can no longer deduct their entire financial costs that arise from their buy to let properties when calculating their profits at the end of the financial year. This means that landlords’ tax bills are likely to significantly increase in the foreseeable future.
It should be noted that the new tax rules do not affect limited companies. Therefore, limited companies can still write-off any financial expenditure from their buy to let properties at the end of the financial year and only their profits will be subject to tax.
An increased number of private landlords have looked into setting up their own limited company to circumvent the effects of the new tax relief rules. If you want to set up your own limited company, then you should review the associated costs with doing so.
Notable changes to the buy to let mortgage market
The Bank of England's Prudential Regulation Authority introduced changes to the regulations that govern buy to let mortgages. These changes affected the way lenders consider landlords' applications for buy to let mortgages.
The 2017 changes forced lenders to look at the affordability of the buy to let mortgages more than ever before.
In order to assess affordability, lenders will implement an income stress test. The income stress test is designed to check whether landlords can keep up with their mortgage payments. In order to satisfy the income stress test, landlords will have to demonstrate that they can afford mortgage payments in the event that the interest rate increases to 5.5%.
In addition to the income stress test, lenders will require a higher rental coverage ratio than in years past. Prior to the changes to the regulations, landlords only needed a rental coverage ratio of 125% to secure a buy to let mortgage. Lenders now will only grant a buy to let mortgage if the landlord has a rental coverage ratio of 145% for standard buy to lets and 170% for houses in multiple occupation. Lenders also will only accept rental coverage ratios that are based on an independent professional surveyor's valuation.
For those landlords with multiple properties, it may be more difficult to secure a buy to let mortgage due to the changes to the regulations. From 2017, lenders will no longer approve buy to let mortgages to landlords with one or more properties that are not profitable. Landlords are now expected to provide the full details of their buy to let properties to allow lenders to complete an in-depth review of their property portfolio. As a result, landlords can no longer spread equity across their portfolio to assist a property that does not provide positive returns.
Changing your residential mortgage to a buy to let mortgage can be a strenuous and difficult process. That’s why we have a team of specialist buy to let mortgage advisers, who can assist and guide you every step of the way in the application process.
If you feel that you would benefit from the help of our buy to let mortgage team, call us today on 0117 403 4222 or fill in our call back request form at the top of the page.