Changing Your Mortgage to Buy to Let

What criteria do I need to meet to change my mortgage to a Buy to Let?

With the Let to Buy route, you have to have at least 25% equity in the property. Without that, you won’t be able to get it over the line.

Lenders also want to make sure that the rental income from the property is more than enough to cover their stress tests, to make sure you could cover the mortgage plus any additional costs, and also manage potential interest rate increases.

Having good credit massively helps, although it doesn’t rule you out if you have previous credit issues. You might just be charged a slightly higher amount.

With a lot of lenders, you don’t need a minimum income, while some other ones may need you to earn at least £25,000 to £30,000.

What happens if you rent your property and don’t change your mortgage to a Buy to Let?

There are two ways of going about this. The first is the legitimate way, where you request something called Consent to Let.

I used to work in Colchester, not too far from here, and there’s a big army presence there.
When we’d arrange mortgages for people in Colchester they’d move into the property and 12 months later they might get stationed somewhere else.

As long as there’s a valid reason, lenders are very flexible in offering Consent to Let. They give you a 12-month period where you could rent the property out. They may charge you a fee to do so and a further interest rate may be added so it’s slightly higher than what you’re currently paying.

Other people just rent their property out without telling the lender. But if the lender catches wind of this, they could recall the mortgage and force it to be paid off – which could put you in a sticky situation.

What is Consent to Let?

Consent to let is as it sounds. You just ask your lender for consent to let the property out.

Not all lenders offer it and some will require an application from you to sort it out. Other lenders will be fine with a telephone call and a form that you need to sign. It all depends which lender you’re with as to how easy the process is.

Another common requirement is for you to have owned the property for at least six months before you couuld apply for Consent to Let.

How much deposit do you need for a Buy to Let? How much can I borrow with a Buy to Let mortgage?

You need a 25% deposit for most Buy to Let mortgages. As the deposit you’ve got increases, in multiples of 5%, interest rates will start decreasing for you.

There are lenders that will accept a 15% or 20% deposit, but they are few and far between and their interest rates tend to be quite expensive.

How much you could borrow is not based on your own personal income, unless you are a First Time Buyer seeking a Buy to Let. Lenders want to make sure that not only does it stack up within the Buy to Let rules, but also within your own personal income – in case there’s an issue.

How much you could borrow really does depend on the lender. If you’re looking at buying under a limited company, they’ll usually lend you slightly more than if you’re doing it in your own personal name.

The loan amount is based on how much the property rents out for. If you’re looking at Buy to Let and you’re working with a mortgage broker, give them the numbers up front. Otherwise, you could see a property that you think is perfect and make an offer – only to find out that the rent doesn’t stack up to get you the borrowing you need.

Do I pay stamp duty if I change my mortgage to Buy to Let?

No. If you own the property already, you don’t pay any stamp duty if you’re just turning it into a Buy to Let.

However, we have had Let to Buy customers where the property is in their own personal name and they’ve sold it to their own limited company, for tax reasons.

Once they’ve done that, the company has to pay stamp duty – because it’s being transferred from a personal name to a business. But if you kept it in your personal name, you wouldn’t have to pay any stamp duty at all.

How soon can you remortgage to a Buy to Let?

If it’s a residential property, you need to have at least six months with most lenders before they allow you to remortgage and turn that property into a Buy to Let.

What else do we need to know about changing a residential mortgage to a Buy to Let?

Not all lenders offer the Buy to Let option. It’s always worth speaking to a broker as we could access lenders that you’re not going to be able to approach yourself, especially if you’re looking at investing in property.

For some vanilla, traditional Buy to Lets, you may find a high street lender that could help, but if you’re doing anything weird and wonderful, speak to an experienced Buy to Let broker, especially if you’re looking at growing a portfolio in the long run.

It really pays dividends to have that conversation upfront rather than trying to do it on your own.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Approved by The Openwork Partnership on 15/10/2024