If you’re thinking ‘Can I change my mortgage to Buy-to-Let?’, we can help. At Avalon Mortgages, we help homeowners in Hemel Hempstead and across Hertfordshire understand how to convert a mortgage to Buy-to-Let, whether through Consent to Let or a full Buy-to-Let remortgage.
Consent to Let vs full Buy-to-Let conversion
There are two things you can do if you want to let out a property with a residential mortgage on it: obtain consent to let from your current lender, or remortgage with a buy-to-let product.
- Consent to Let: You don’t remortgage at all with Consent to Let. The idea is that you stay on the same product with the same lender, although your lender may introduce some new conditions. Usually, Consent to Let involves obtaining permission from your lender to let your home for 6–12 months.
- Buy-to-Let remortgage: Buy-to-let mortgages involve a different method of assessing your affordability than residential mortgages. Your affordability is worked out using your expected potential rental income from the buy to let, rather than your personal income which is used for a residential remortgage.
Switching from a residential mortgage to a Buy-to-Let mortgage
Remortgaging to a Buy-to-Let mortgage involves remortgaging onto a whole new product with a new lender. Unlike most residential mortgages, which are normally on a repayment basis, most Buy-to-Let mortgages are interest-only. In other words, the borrower only pays the interest on the loan each month and repays the capital at the end.
Remortgage to buy another property
You may want to remortgage to release equity from your property. You can then use the money that’s released as a mortgage deposit for a new home. A residential mortgage is then arranged on the new property alongside the Buy-to-Let mortgage on your current property.
Capital raising and lender restrictions
One way to remortgage and release equity from your property is through a Capital Raising remortgage. It’s essentially a remortgage to raise capital by releasing equity from a property you already own. This additional equity comes from the difference between the current mortgage and the property’s value. You simply remortgage for an amount greater than the amount outstanding on your existing mortgage.
Risks, tax implications and lender criteria
Risks
- rising mortgage costs
- stricter tax and regulatory changes
- shifting tenant demand
- void periods
- higher maintenance expenses due to inflation.
Tax
In the past, landlords could deduct mortgage interest from rental income before calculating tax. Now, you receive only a basic rate (20%) tax credit. Meanwhile, when you sell a rental property, you'll probably owe Capital Gains Tax (CGT)on any profit.
Criteria
Lenders have specific criteria for buy-to-let applicants.
- Most lenders require a minimum personal income of £25,000 per year, regardless of expected rental income.
- The minimum age is typically 21-25 for most lenders, though some accept 18+.
- Most mainstream lenders require you to already own a property; either your own home or another buy-to-let.
- A clean credit history makes a big difference.
Next steps
Ready to convert your mortgage to Buy-to-Let? Get in touch with Avalon Mortgages’ experts in Hemel Hempstead for professional guidance.
