Changing from residential to buy to let mortgage

[Flower212]

I currently own my own home and I am on a fixed rate mortgage with West Brom building society until August 2024.

I am wanting to move in with with my partner at some point next year, but ideally wanted to do this before my fixed rate ends (probably a few months before). I am considering switching to a buy to let mortgage, keeping ownership of my home but renting it out through an agency. Can anyone offer some advice on the process of doing this, and am I likely to be able to switch to a buy to let before my fixed rate ends if West Brom let me?

I understand they would need to do another affordability assessment. I work full-time on a fairly good salary but my salary is also due to increase quite a bit in summer next year when I finish my masters qualification so I’m not sure if it would make much difference to wait until after then?

Easiest thing would be to keep the mortgage you have and get consent to let.

As PP suggested I would ask for consent to let and then remortgage on a buy to let when your fixed term ends.

Hi, does this just mean asking for this from my current mortgage company? Would it change the cost in any way? I am completely new to the idea of renting out, how would I work out the rent cost to charge taking into account my current mortgage monthly fee and any fees to the agency?

Yes, just talk to your current lender, most will have a process to apply for consent to let, which will save you the cost of getting conveyancers involved (which you need when changing) and early exit fee. Plus if things don't work out with your BF (not saying they won't, but it's always possible) then it's easy to go back, whereas if you get a BTL mortgage, then want to ho back you would have to re-apply and change back to a residential mortgage.

You will be able to ask estate agents to estimate rental value, most do this for free as they hope you will then use them to manage the property.

The rent you charge will be based on market rates in your area, but as @Sprogonthetyne says you can get an agency to give you an idea of what they'd recommend you charge. Please be aware this should cover all of your costs as a landlord, which includes mortgage and agency fees, landlord insurance, maintenance costs inc gas safety certificate, EPC, smoke and CO2 alarm maintenance, other repairs and minor redecoration, energy and council tax bills for any 'void' periods between tenants, renewal fees, cost of doing your self-assessment tax return (you can do it yourself) ... what I'm basically saying is that there is a lot involved. I would advise you against it as an 'accidental landlord' for over 15 years. It's been a pain in my arse and I've only had pretty decent tenants, few voids. Rents have been up and down in that time, and the capital in the property would have done better in the stock market.

I realise this isn't what you asked! But just thought it was worth considering other options. I completely understand the concept of wanting to hold on to the asset but if the idea is to be able to move back in if you need to, this recent thread is a good reminder that your tenants can't be turfed out at a moment's notice (not that I'm suggesting you would be a mad landlady like the one in the thread!).

@tribpot thanks for this, do the agency help with the paperwork side of things?

Is it worth waiting until I am on the bigger salary next year, or shouldn’t it make much of a difference if I ask my mortgage company permission to let? I would probably have to remortgage anyway when my fixed term ends in August 2024, view a view to change to a buy to let mortgage, but would like to move at least a few months before this.

My agency arrange all the maintenance although I have to let them know when the freeholder management company are coming to test the smoke alarms. I think they will help with the tax return. But it's still a load of admin hassle and uncontrollable expense for you.

Don't forget to think about capital gains tax when/if you sell the property you rented out.

Why have a buy to let mortgage at all? They are no advantage. We’ve just sold a house we let out. We owned it outright. It’s way too much hassle. It’s definitely best to go to an agent but with decent interest rates (over what they have been) I’ve sold, invested in bonds and I’m relaxed about it. No boilers breaking down. No anti social behaviour. No redecorating and no worries. Sell up immediately you know where your future lies.

@TizerorFizz if I am already renting it out when my fixed term ends next year and I decide to re-mortgage (because ideally I don’t want to go onto a variable rate) would I have to re-mortgage to a buy to let mortgage or would I be able to do residential again and just tell them I am renting out? Sorry if that’s a daft question I am a novice to all this.

Several things. A BTL mortgage is based on rental income. Not your income. There’s affordability checks based on income from renting it out . You can remortgage early and not go to the end of the term. You need to do the sums.

If you let it out first, you might be stuck with BTL mortgage and no choice. You need to work out which option is best and even delay renting it out. Will the rent cover the outgoings and what is the ratio of mortgage/deposit? All this will matter. Residential mortgages are usually cheaper. Arrangement fees are usually higher for BTL. You might have to pay CGT when you sell. It will have a BTL mortgage so it’s not your main residence. Look up CGT rules. I would avoid BTL. In fact I’d sell it.

I’m surprised anyone would want to become a new Landlord these days. Seriously, have you not been reading about all the LLs who are selling up because it is such a bad time to let a property out? I think you need to do a lot more research. Not on Mumsnet, proper research.

I rent my home out with consent to let. I have done for years. It is on the standard variable and I am not able to change to a new product while it is rented out and a 1% surcharge is added because it is rented out (with Nationwide).

Do you have a big mortgage/a high loan to value?

If you are a higher rate tax payer (or the rent you receive makes you a higher rate tax payer) your mortgage interest is not fully deductible for tax purposes. The more mortgage interest you pay the more likely you will make a loss - if you are a higher rate tax payer.

Don't assume it will be easy to get a buy to let mortgage - check you can get one if that's what you want to do. Ask a broker if they would mind advising you on an outline of your circumstances. Usually a buy to let lender expect you to earn over a set amount, often stipulate you must be a home owner (not the property you are seeking buy to let on) and expect the rent received to be greater than the mortgage by a certain factor. If you don't meet these criteria of high Street lenders you might need a more expensive buy to let mortgage. You might not need a buy to let mortgage as many lenders will give consent to let on an ongoing basis. You will need landlord insurance for the property.

Does your property have a C in EPC? If not as things stand you will be expected to get it up to a C in the coming years or to spend (I think) it is 10k trying.

You sound a bit unsure at the moment. I think you need to understand the costs/profit/taxation involved and make sure it's not going to be an ongoing cost for you at a time when house prices have started falling. E.g. make sure that over 2-5 years you will be in profit and you won't have just paid out money to own a house worth less than you started with.

Just to add sometimes people have completely the wrong idea about how tax works on a rented property.

Just imagine your mortgage is 1k a month and your rent received is also 1k a month (no expenses for ease of example but in reality you would deduct expenses). Imagine the mortgage is half capital repayment and half interest. So over a year 6k capital repayment and 6k interest.

If you are a higher rate tax payer (or the rental receipts make you one) you would pay tax on the whole amount and receive a 20% credit back on the mortgage interest resulting in tax of £2,400 on the 6k capital repayment (at 40%) and £1,200 on the interest (40% with a 20% credit back). So your tax would be £3,600 if no other expenses. If the rent received has been used to pay your mortgage you will need to find your tax money from your other income such as your salary.

@Winter2020 I think the OP said £35,000 pa was their salary but was going to increase. Therefore declaring rental income could push into higher rate tax. There’s a good article in Which .co.uk which explains it well. There’s so much difficulty being a landlord now. It’s really a professional occupation.

It always should have been a professional occupation as far as I can tell. So many clueless "accidental landlords" unaware of the rights their tenants should be entitled to.

I've no objection to LLs who treat it like a proper business but got no sympathy for those who fall into renting out property like it's a hobby and then get caught with unexpected bills & expenses.

We used an agent. Occasional landlords should not diY in my view. But we never had mortgages and kept it simple. Houses now sold and we are out!

I think it’s difficult for people in the op’s position. She wants to keep her own property, just in case it doesn’t work out. However it changes the relationship you have with your property. Also if you want it back in a hurry, you might not get it. New legislation makes being LL with a house you might want back a lottery.

Get consent to Let. They will tell uou the process to change to a Buy To Let at the end of your fixed term.

I did this with Santander and they just swapped me to a Buy To Let, no affordability checks were done. Your mortgage company may be different. It won't be based on your income but the income the property will earn if they do new checks. If you want to move back you would need to swap back to residential.

You really need to read up on being a landlord and your responsibilities. It is easy to see the sort of rent you will get by looking at Rightmove surely?

I'm an accidental landlord due to the cladding crisis. The flat is impossible to sell or remortgage until the fire safety work is done on the building and the legal battle to make the developer fix the problems they made when building it hasn't even properly started yet. We have a reliable long term tenant in but the flat still costs us hundreds more than the rent every month as we're on a variable rate plus 1% for consent to let and service charges and buildings insurance have gone up too. It's too small for our family or we would live there to save money. It's a nightmare and I'd do anything to be able to get rid of it.

You need to look into the legal responsibilities of being a landlord.

even if you hire an agency the responsibility is ultimately yours - so you need to know what is necessary to keep yourself right.

Don’t go into it thinking you can just hand over everything without a thought.

Same here @PelvicFloorExerciseReminder only I have 4 with cladding issues. I'm now subsidising them for more than I actually earn a month so not sure how long I can do it as it's burning through the (large!) sink fund I had for the properties.

I was meant to have sold them off years ago, but then the cladding scandal came along...