HELP! Converting Residential mortgage to Buy-To-Let?

hazysunshine · 13 January 2007 at 1:44PM

Hello everyone!

I'm a newbie here! :beer:

I recently bought a flat for £103,000 using a residential mortgage and paid a 5% deposit. My circumstances have now changed and I can't move in. I completed in November and it's still empty.

I don't want to sell the place, and I was wondering how easy is it to change my mortgage to a Buy-To-Let?

My mortgage advisor says that if I ask my mortgage company to change so soon after completing, that it will look as if I did it purposely, in order not to pay a higher deposit associated with Buy-To-Let mortgages.

I want to let it out, because I'm paying rent AND a mortgage. Can I go ahead, let it out to a tenant, keep quiet with the mortgage company and maybe, after a while, notify them that I want to change it to a Buy-To-Let?

What is the process with converting a residential mortgage to a Buy-To-Let? Do I have to pay a lump sum that I would have ordinarily paid as a bigger deposit when I took out the mortgage?

I am aware that my interest rate will increase - that is not a problem, but if they also demand a further lump sum of money, to increase my initial deposit value, then I have a problem, as I don't have that sort of money to hand.

Any help, suggestions and advice would be much appreciated - thanks :T

Jimbojet

silvercar · 13 January 2007 at 3:36PM

whether you tell the mortgage company or not, you need to tell the insurers. otherwise you could find yourself not covered in the event of a claim.

Ordinarily, you would need a 15% deposit for a BTL but your situation is a bit different.

Sounds like your advisor is hinting that you shouldn't tell the mortgage company just yet. I'm sure the priority is making sure the mortgage is paid.

Xbigman · 13 January 2007 at 4:24PM

Can you show your mortgage holder what circumstances changed and back it up with documentation? That might help.
Regards

X

specs_3 · 13 January 2007 at 4:41PM

I would speak to the mortgage company with a different explanation than you gave here because it sounds like you did exactly what you are claiming you didn't.

UK007BullDog · 13 January 2007 at 6:17PM

Which lender is the mortgage with?

Some lenders do not mind. Ohers have a serious issue with it.

MarkyMarkD · 13 January 2007 at 6:22PM

You should notify the lender and provide evidence of your change in circumstances, if they want it, as otherwise (as previously posted) it sounds exactly like you've deliberately bought with a residential mortgage with every intention of letting.

hazysunshine · 14 January 2007 at 12:58AM

specs wrote:

I would speak to the mortgage company with a different explanation than you gave here because it sounds like you did exactly what you are claiming you didn't.

Gotcha - I hear what you're saying! Ill just keep quiet for now and show im good for paying my mortgage!

hazysunshine · 14 January 2007 at 1:01AM

silvercar wrote:

whether you tell the mortgage company or not, you need to tell the insurers. otherwise you could find yourself not covered in the event of a claim.

Ordinarily, you would need a 15% deposit for a BTL but your situation is a bit different.

Sounds like your advisor is hinting that you shouldn't tell the mortgage company just yet. I'm sure the priority is making sure the mortgage is paid.

The buildings insurance is all done through the freeholder - will it increase my premium by much? At the mo its £200 a year...

TEDDYRUKSPIN · 14 January 2007 at 1:59AM

It is very important that apart from getting a buy to let home insurance, you will also have to tell the mortgage provider someone else above the age of 18 is living in your house. By law, if they repossess your property, they won't be able to remove the tenants if you do not tell them. This will result in court proceedings and etc etc etc. You get my point.

You also have to register that you are renting for income. If not, you will also result in a massive fine.

Also tax implications! Lower bracket = 22% and above is 40%.

silvercar · 14 January 2007 at 4:33PM

TEDDYRUKSPIN wrote:

It is very important that apart from getting a buy to let home insurance, you will also have to tell the mortgage provider someone else above the age of 18 is living in your house. By law, if they repossess your property, they won't be able to remove the tenants if you do not tell them. This will result in court proceedings and etc etc etc. You get my point.

You also have to register that you are renting for income. If not, you will also result in a massive fine.

Also tax implications! Lower bracket = 22% and above is 40%.

The point is that by letting, the OP is more able to pay the mortgage and less likely to be repossessed. If they did repossess they would be able to remove tenants. The tenant could, in theory, take the landlord to court. In practice there would be little point as anyone repossessed is hardly likely to be in a position to pay compensation for breach of contract.

You should register with the inland revenue that you are renting a property out. In practice, for those with large mortgages, the rent is totally offset by the mortgage interest and other expenses, so there are no taxes to pay.

MarkyMarkD · 14 January 2007 at 8:31PM

I don't think that many BTL landlords would agree with you, silvercar. Even with a 95% mortgage (at a low discounted or fixed residential mortgage rate) it's quite likely that there will be some net rental income after offsetting expenses.

As you say, anyway, it's a new source of income and this should be reported to the Inland Revenue straight away.

Oh, by the way, as soon as the OP notifies the lender that his correspondence address has changed (without him selling the house) it becomes rather more likely that they will work out that he's renting the property out. The alternative is having all the mortgage statements and similar correspondence delivered into your tenant's hands (albeit addressed to you). Hmm. Or you could pay the Post Office to redirect post to your real address.

HELP! Converting Residential mortgage to Buy-To-Let?

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