Being a landlord can involve a lot of work and stress. Things can change quickly with your tenants or even your situation.
If your circumstances change in any way (temporarily or permanently), changing your mortgage from buy-to-let to residential is a valuable option.
Read on for an answer to these questions.
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage taken out and used specifically for a buy-to-let property.
The UK has had dedicated buy-to-let mortgages since September 1996.
If you take out a mortgage to purchase a residential rental property, the Financial Conduct Authority’s (FCA) rules dictate that it must be a buy-to-let mortgage.
Most buy-to-let mortgages are interest only. This means that the owner only pays off loan interest (rather than the principal or the original capital loaned).
Mortgage providers view these mortgages as relatively riskier. So, they usually incur:
- Higher interest rates
- Higher upfront arrangement fees
- higher initial deposits.
So, whilst there is technically no limit to how many buy-to-let mortgages somebody can take, lenders will limit how much they lend to each landlord.
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.
This is possible in several situations, primarily if you (the owner/investor):
- Have changed your situation (i.e., you have decided to stop being a landlord)
- Plan to move into the property temporarily or permanently
- Have any other plans which mean the property will no longer be commercial let.
You must inform the mortgage provider if you intend to cease renting it out. Otherwise, it is considered mortgage fraud and a breach of contract.
This applies no matter how long you intend to move in – even if it is just for a night.
Permanent move
If you plan to move in permanently to your former buy-to-let property, they must switch to a traditional homeowner mortgage.
That will require:
- An assessment of your financial circumstances
- Information about the property’s value
- The equity you hold
Temporary move
If you plan to move in temporarily, you might have other options, including:
- Remain on the existing buy-to-let mortgage subject to paying a reversion rate
- Re-mortgaging.
Engaging with the mortgage provider before you make a decision is essential. It gives you more time 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 for several reasons, including:
Family situation
There are countless examples of potential changes in family situations. For example:
- New children being born (requiring a more extensive property)
- A separation or divorce occurs when one party moves out and needs a new place to live
- A child reaching adulthood or going to university
- Elderly parent/s need a more manageable home
Downsizing
Many homeowners move to smaller properties once their children have left home or there have been other material changes to the space needs of the owner/investor.
Returning home
When the owner/investor may have been working elsewhere, either within or outside 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 temporarily before they can move into the property. In this situation, they will only move in temporarily before seeking to re-let the property.
What steps are involved in switching?
Switching from a buy-to-let to a residential mortgage requires a new lending agreement, so you must ask your mortgage provider for approval.
It is wise to shop around the market to see if better deals are available. A new mortgage agreement will require the usual checks on the property and borrower.
Not all buy-to-let lenders will permit a mortgage to a residential mortgage. Finding the right mortgage broker will be essential.
If you still have sitting tenants, you need to respect their rights. Even if you are evicting them under a Section 21 Order, for example, there are procedures and processes to follow.
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