Remortgaging a Home to Buy-to-Let – How Does it Work?
If you are planning to relocate but would like to hold onto your current property, you could consider letting it out to tenants, in which case, you would need to remortgage your home to buy-to-let.
Contrary to popular belief, it is not permissible to let a property out to tenants under the terms of a conventional mortgage. If planning on renting out your current home when you move, you will need to switch to an appropriate buy-to-let mortgage.
How Can I Remortgage My Property to BTL?
It is worth noting that some lenders will provide mortgage payers with formal ‘consent to let’ upon request. Depending on your provider and the nature of your situation, you may be granted consent to let out your property without having to switch mortgages.
This could result in alterations to the terms and conditions of your loan agreement but would still be considerably simpler than transitioning to a new mortgage.
If you are not granted consent to let, you will need to switch mortgages to an appropriate buy-to-let product. Changing a residential mortgage to a Buy to Let mortgage means completely changing all (or most) aspects of your home loan.
Eligibility is typically determined on the basis of a rental income calculation. This is where the lender assesses whether or not the monthly rental income the property generates will be enough to cover the costs of the mortgage. Generally speaking, you will need to provide evidence that the rental income will be at least 145% of the monthly mortgage payment.
As you are already paying off a mortgage on your home, you will not have to provide evidence of the property’s value or your general financial position if you intend to stay with the same lender. If you decide to remortgage elsewhere, you will need to go through much of the same process that applies when submitting a conventional mortgage application.
Is Buy-to-Let a Cost-Effective Option?
Establishing the suitability for becoming a buy-to-let landlord is something that should be done with the help and support of an independent broker or adviser. Rental properties in the UK have the potential to generate generous income streams for their owners.
However, there are additional costs and complications to be factored in, including but not limited to the following:
- Mortgage fees – often significantly higher for BTL properties than the home you intend to live in
- Letting fees – applicable if you intend to hire a lettings agent to find tenants and generally manage your property on your behalf
- Stamp duty – additional stamp duty is payable on second homes and on some buy-to-let properties, charged at a standard rate of 3%
- Upkeep and maintenance – as the owner of the property, you will be liable for all costs incurred by way of repairs, maintenance and everyday wear and tear
There are numerous factors that must be considered, when establishing whether letting out your current home is the right course of action.
For more information on any of the above or to discuss buy-to-let mortgages in more detail, contact a member of the team at UK Property Finance today.
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