Can I Change My Mortgage To Buy To Let In UK: Why? When? & How?

Let me share the story of one of my clients, Mark. Mark had been diligently paying off his residential mortgage for several years when unexpected circumstances struck. He found himself facing a sudden job loss after Brexit and struggled to keep up with the monthly mortgage payments. Frustrated and concerned about his financial stability, Mark turned to me for guidance.

During our conversation, it became clear that Mark’s immediate need was to alleviate the financial strain and avoid the risk of falling into arrears. As we delved deeper, we discovered that changing his mortgage to a BTL could provide a viable solution. By converting his property into a rental investment, Mark could secure a steady stream of income to cover the mortgage payments while potentially earning additional profits.

But there were still some questions, when and how Mark can change his mortgage to Btl. Well, I did answer his questions and if you are anything like Mark and asking questions like: Why switch to BTL or When to switch or how to do that then this article is for you. 

This article will examine all the reasons why changing from a residential to a buy-to-let mortgage is necessary. We will also examine when and how you can make this change. As mortgages are complex, it is imperative to do thorough research and consult with experts in the field before starting the process of switching to a buy-to-let mortgage.

Key takeaways: switch to a buy-to-let mortgage

  1. It is possible and legal to change a residential mortgage to a buy-to-let mortgage if you plan to rent out the property.
  2. Common reasons for switching include moving to a new home but keeping the old one to rent out, or needing rental income to cover mortgage payments.
  3. Benefits include being able to switch to interest-only payments and earning rental income above the mortgage costs.
  4. The best time to switch is when moving home or when your current mortgage deal is ending, to avoid extra fees.
  5. Working with a mortgage broker can help secure the best buy-to-let mortgage rates through their lender contacts and remortgaging expertise.

Can I Change My Mortgage to Buy to Let?

Can I Change My Mortgage to Buy to Let ?

The simple answer is yes, you can change your mortgage to a buy-to-let mortgage. In fact, you are required by law to change to a buy-to-let mortgage from a residential mortgage if you rent out your residential property.

However, as mentioned earlier, mortgages are often complicated, and changing a mortgage to a buy-to-let is no exception. It is important to have a good understanding of the process or to seek professional advice to ensure a smooth transition. Now, let’s delve into the details and discuss the reasons and process of switching to a buy-to-let mortgage.

Why & When a Homeowner Switch to Buy to Let Mortgage?

There are several reasons why an individual may need to change from a residential mortgage to a buy-to-let mortgage. The most common scenario we have encountered as brokers is when clients move from their current home to a new property. 

In this situation, the client would switch their current mortgage to a buy-to-let mortgage and potentially buy another property with a residential mortgage. This is a popular option among our clients, as it allows them to generate an additional income stream while still living in a new property.

Another scenario that we have seen frequently is when clients move out of their current residential property, which is mortgaged, and into a family home or rental property for work reasons. In this case, the client would need to switch to a buy-to-let mortgage in order to rent out their former residential property.

In some instances, we have observed clients switch from a residential mortgage to a buy-to-let mortgage due to financial pressures, such as the loss of a job. This allows the client to generate rental income to help meet their mortgage payments.

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Benefits of Changing Mortgage to Buy to Let

It is illegal to rent out a property that is under a residential mortgage. Therefore, it is necessary to switch to a buy-to-let mortgage. Additionally, there are some benefits to converting to a buy-to-let mortgage.

One of the main advantages of switching to a buy-to-let mortgage is that you can change your repayment method to an interest-only system, which reduces your monthly payments and allows you to make money from rent after paying off your mortgage.

Understanding the Tax Implications of Switching to a Buy-to-let

When transitioning a residential property to a buy-to-let investment by changing a residential mortgage to a buy to let mortgage, it is crucial to consider the tax implications that may apply. Renting out your previous main home can trigger capital gains tax charges in some cases.

If you lived in the property as your primary residence at some point, capital gains tax relief should cover the period of owner-occupation. However, gains accrued since moving out may incur tax when you begin earning rental income after the switch to a buy-to-let mortgage.

For example, if you purchased your home for £200,000 and lived there for 5 years, the market value was £250,000 when you moved out, and you later sold it for £300,000 after renting it out following the change from your residential mortgage to a buy-to-let mortgage, you would pay tax on the £50,000 gain from the time you switched to a buy-to-let.

The capital gains tax rate depends on your income tax bracket but is typically 18% or 28% of the taxable gain. There is an annual exemption allowing you to make some gains tax-free each year. Professional tax advice can help maximize the use of allowances and exemptions when changing your residential mortgage to a buy-to-let.

Being aware of these capital gains tax implications before switching your mortgage and renting out your former home allows you to make informed decisions and effective tax planning. Speaking to a qualified tax advisor is recommended to understand your position. With the right tax planning, you can confidently convert your residential property into a profitable buy-to-let investment.

How to Change to Buy to Let Mortgage From Residential Mortgage?

Now let’s discuss when you should change to a buy-to-let mortgage and what are the best ways to do so.

The ideal time to switch from a residential to a buy-to-let mortgage is when you are moving to a new home and plan to keep your existing property. This is a common progression for existing homeowners entering the buy-to-let market.

Also, if you’re considering switching to a buy-to-let mortgage with a new lender, it’s financially advantageous to do so when your current rate is coming to an end. This can help you save money by avoiding early repayment charges.

The best way to change to a buy-to-let mortgage is to contact your existing lender and see if they can offer you a buy-to-let product. If your mortgage lender does not offer such a product, they may be able to grant you consent to let permission for a period of two to three years, giving you enough time to switch to a buy-to-let lender when it is appropriate.

One common way for clients to switch from a residential mortgage to a buy-to-let product is by remortgageing their existing mortgage. The advantage of remortgaging to a buy-to-let lender is that you may be able to release some equity from the existing property to buy a new property. You can also use a buy-to-let mortgage to release equity from the existing residential property for other purposes, such as debt consolidation, holiday homes, or home improvements.

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How Expert Mortgage Brokers Can Help? 

It is important to take the appropriate action when letting out a residential property. In most cases, it is illegal to let out a residential mortgage property without the lender’s knowledge. Please be cautious, as this can have a damaging impact on your related insurance policy attached to the residential mortgage property. For further clarity, please contact one of our experts for assistance.

As independent mortgage brokers, we have access to various clubs and networks, allowing us to secure the best rates for remortgaging an existing residential property to a buy-to-let mortgage. We have helped hundreds of clients switch from a residential to a buy-to-let mortgage and have encountered many different and complex scenarios. 

If you need further information on this subject, please feel free to contact one of our expert mortgage brokers or mortgage advisors.

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