If you want to convert your existing property into an investment property, you will need a Let to Buy Mortgage
If you want to convert your existing property into an investment property, you will need a Let to Buy MortgageA Let to Buy Mortgage is basically where the applicant wants to remortgage their existing residential property which will be let out to tenants, and use the equity for a deposit on a totally new residential property. There are lots of changes on the horizon for the Let to Buy properties, especially around income verification, affordability and feasibility of the mortgage. This is because often the applicants are not experienced landlords so are deemed to be at higher risk.
With changes around Mortgage Credit Directive (MCD) and Buy to Let mortgages coming in next year, Let to Buy mortgages will be more scrutinized. This can also be said for other permissions around letting your existing residential property.
The Mortgage Credit Directive, effective 21 March 2016, will introduce a legislative framework for Consumer Buy to Let (CBTL). This covers the small number of Buy to Lets where the borrower has not entered into the mortgage contract for business/investment purposes.
For example, currently you can ask for consent to let from your existing Lender to rent the property if you want to stay with that Lender during your fixed term period, but your contract with that Lender was originally only for residential purposes. Currently some Lenders allow you to rent the property if you are not taking any equity out or changing the term and will give you consent to let, but I think there will be more work done around this topic to protect the clients as well as the Lenders.
So how does Let to Buy differ from a standard Buy to Let Mortgage?
A Buy to Let Mortgage is where a property is going to be purchased or is already owned by the applicant as a rental property. This type of deal falls outside of the standard regulatory guidelines because it is essentially treated as a commercial entity. At the end of the day, the property is not your residential property and you are using it generate income as an investment.
Different Lenders have very different criteria around Let to Buy Mortgages. Some don’t even offer this type of product. Most would only allow a Let to Buy Mortgage if the purchase on the new property was taking place at the same time.
Let to Buy Mortgage Lenders currently have slightly differently criteria around this product, for example, a few Lenders will allow you to let your existing property and move in with family members, where others will say that you must be purchasing another residential property for them to allow you to convert your existing property to let.
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Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.
