If you’re ready to move out but you’re not quite ready to sell yet, switching to a buy-to-let mortgage could be the ideal choice for you. In this guide, we examine what a buy-to-let mortgage is and how to change your current mortgage.
What is a buy to let?
Buy to let is when you purchase a property with the intent to rent it out rather than live in it yourself. This is a common investment strategy that can provide both short-term streams of income and long-term profit.
Buy-to-let mortgages are designed for people who let out their property rather than live in it. Most buy-to-let mortgages are interest-only, and your rental income will need to cover at least 125% of your monthly repayments to get approved for a buy-to-let mortgage.
Related: Can I rent out my annexe?
Why should you consider switching to a buy to let?
There are many reasons why someone might switch their residential mortgage to a buy-to-let mortgage, as sometimes this can make the most financial sense. For example, you may be moving in with a partner or relocating for work, but you don’t want to sell your property outright. Switching to a buy-to-let mortgage allows you to rent out your home legally and earn some extra income.
What you need to switch your mortgage to a buy to let
To be eligible for a buy-to-let mortgage, your lender will need to consider the following:
- Equity – You’ll likely need to own at least 25% equity in your home which can be used as the deposit. How long you’ve owned the property will also be considered by lenders.
- Affordability checks – Lenders need to be confident that you can keep up with repayments, so you must meet affordability checks to ensure your rental income will cover your monthly mortgage payments.
- A good credit score – Your credit score can sometimes be a make or break when it comes to securing a buy-to-let agreement. The better your score, the more opportunity you have to secure a favourable rate.
- Homeownership – Depending on your lender, you may need to already own your home, either outright or with a separate residential mortgage.
- Another source of income – You must have a primary source of income separate from your rental income. This is usually a permanent job or self-employment, so you will need to provide payslips as evidence.
Is switching to a buy to let more expensive?
Buy-to-let mortgages are typically more expensive as there is more risk for the lender. Interest rates are usually higher so it’s important to do your research first and find out whether your home’s potential rental income is enough to cover mortgage repayments, ideally with some extra leeway.
Related: Will I pay Stamp Duty for my buy-to-let property?
How to switch your mortgage to a buy to let
If you’re looking for the best possible mortgage deal, it’s always best to speak to a mortgage broker for expert advice. They’ll be able to explain all your options, the costs involved and whether you have enough equity to switch mortgages.
Consider your options and don’t rush
The last thing you should do is rush into changing your mortgage deal, as there are hundreds of options awaiting and you’ll need to take your time to find the right one.
Explore different mortgage rates
Your current lender will advise you on the rates they can offer, but you don’t have to stick with them. In fact, you should shop around before settling on a deal, as you might find more favourable rates with a different lender.
Speak to a mortgage adviser to help simplify your search.
Approaching your current lender
Whether you plan on staying with your current lender or not, you should still speak to them about your plans. Ask them if it’s possible to switch to a buy-to-let mortgage and what they can offer you. Make sure to ask if there are any additional costs involved, such as early repayment charges.
Need more information about leasing a property?
With tight legislation and changing market dynamics, becoming a landlord and successfully managing a property is no easy task. Martin & Co’s letting agents can be your guiding light through the intricacies of the rental market.
