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HELP! Converting Residential mortgage to Buy-To-Let?
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# 1
hazysunshine
Old 13-01-2007, 12:44 PM
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Exclamation HELP! Converting Residential mortgage to Buy-To-Let?

Hello everyone!

I'm a newbie here!

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

Jimbojet
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# 2
silvercar
Old 13-01-2007, 2:36 PM
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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.
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# 3
Xbigman
Old 13-01-2007, 3:24 PM
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Can you show your mortgage holder what circumstances changed and back it up with documentation? That might help.
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# 4
specs
Old 13-01-2007, 3:41 PM
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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.
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# 5
UK007BullDog
Old 13-01-2007, 5:17 PM
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Which lender is the mortgage with?

Some lenders do not mind. Ohers have a serious issue with it.
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# 6
MarkyMarkD
Old 13-01-2007, 5:22 PM
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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.
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# 7
hazysunshine
Old 13-01-2007, 11:58 PM
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Quote:
Originally Posted by specs
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!
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# 8
hazysunshine
Old 14-01-2007, 12:01 AM
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Quote:
Originally Posted by silvercar
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...
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# 9
TEDDYRUKSPIN
Old 14-01-2007, 12:59 AM
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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%.
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# 10
silvercar
Old 14-01-2007, 3:33 PM
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Quote:
Originally Posted by TEDDYRUKSPIN
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.
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# 11
MarkyMarkD
Old 14-01-2007, 7:31 PM
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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.
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# 12
hazysunshine
Old 15-01-2007, 10:24 PM
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Pardon my ignorance (I'm a newbie remember!) but what does 'OP' mean? You guys mention it above....
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# 13
UK007BullDog
Old 15-01-2007, 10:30 PM
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Original Poster = the person who started the post/question.
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# 14
MarkyMarkD
Old 16-01-2007, 12:36 AM
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Sorry for jargoning, jimbo.
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# 15
hazysunshine
Old 16-01-2007, 9:56 PM
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Don't be sorry Marky - like i said, im a newbie!! I gotta learn these terms!!

Thanks for all your help!

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# 16
ossie1
Old 17-01-2007, 12:25 AM
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I have worked for a major lender for twenty years in residential lending market. One of your previous postees commented about some being okay with it and some not. With my company, even so soon after completion, we would not have an issue with converting to btl. Circumstances change. i have seen this happen regularly where couples purchase property for first time, split up and subsequently no-one wants/can afford to live there. It happens. We charge a fee ( around £150 i think ) for consenting to the letting and this must be on an AST ( Assured Shorthold Tenancy )
We don't change the rate and we don't ask for a higher deposit.
To ensure you don't encounter future problems with the lender/inland revenue/insurance company etc tell the lender. If you are genuine you should find that they are helpful.
Can you say who the lender is? May be able to offer you more help/info.
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# 17
bbbirdy
Old 17-01-2007, 8:30 AM
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Hi,

another newbie here in a similar situation. By next year we will have to move to a different town and we dont want to sell this house either. our mortgage is with bank of scotland[halifax's buddy]. Do you guyz think this lender might agree to a BTL???

another question: my immediate concern: I recently had a very poor credit scoring and went thru a independent mortgage advisor to buy this house. Now my credit has improved to ok status as time has passed since then. Experian report doesnt show any record of a new mortgage. So we called experian and found out that bank of scotland must have preferred not to share the mortgage information with credit companies. I am in need of a loan and I dont know how this works. I personally thought if it had said yes against the mortgage column it would have given me more support. any suggestions?
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# 18
lightspeed
Old 17-01-2007, 11:31 AM
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Quote:
Originally Posted by ossie1
I have worked for a major lender for twenty years in residential lending market. One of your previous postees commented about some being okay with it and some not. With my company, even so soon after completion, we would not have an issue with converting to btl. Circumstances change. i have seen this happen regularly where couples purchase property for first time, split up and subsequently no-one wants/can afford to live there. It happens. We charge a fee ( around £150 i think ) for consenting to the letting and this must be on an AST ( Assured Shorthold Tenancy )
We don't change the rate and we don't ask for a higher deposit.
To ensure you don't encounter future problems with the lender/inland revenue/insurance company etc tell the lender. If you are genuine you should find that they are helpful.
Can you say who the lender is? May be able to offer you more help/info.
Sorry to hijack but...

...your post identically describes my situation. Bought a property about 7 months ago with my partner/fiancee. We bought the property at a good price (in todays market) and have since spent the past 7 months completely modernising the property without living there. It now stands without carpet and a kitchen and my partner broke the news to me over christmas :rolleyes: that she no longer wants the house and is unsure about the relationship in general :confused: .

Anyway, had one valuation (valuer said that ours was the third break up he had seen that day) and got another arranged for today and there is a strong possibility that i will be able to buy her out, however, as the mortgage was arranged on a joint income, my salary alone means i could find myself about 30K short (on multiples upto 5X) for the A & L to allow me to keep on the mortgage on my own. I have a few other avenues to pursue and one (not the primary option) was to buy her out and if at all possible convert to buy to let until the end of the 2 year fix and then review the situation then (wages may have increased, savings will definitley have increased - so the mortgage would become more affordable).

Do you know how the A & L would view this?

Thanks in advance

Last edited by lightspeed; 17-01-2007 at 11:35 AM.
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# 19
silvercar
Old 17-01-2007, 1:29 PM
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they way to find out your lenders opinion is to ask them!

preface your comments with, "thinking of...", "possibility of..." etc so you have room to manouvre.
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# 20
MarkyMarkD
Old 17-01-2007, 1:49 PM
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A&L will consent to letting on payment of a fee; you won't have to change mortgage products to a BTL.

They will consider the transfer of equity on an affordability basis, not an income multiple one, so you may be able to achieve what you need - it depends on your outgoings.

If your partner wants out and isn't interested in the property, then arguably the price you pay her should reflect that - she would be triggering the repayment penalties on the loan, for example, if she made you redeem early, so she should bear the full amount of those even though you may not actually incur them because you are choosing to keep the property and the loan yourself.

Similarly, she should bear the full amount of any selling costs (estate agency fees etc) even though you aren't selling.

At the end of the day, it's her who's messing up your joint plans for the future and I don't see why you should suffer financially for that. Or more to the point, I don't see that she should benefit from value the property has gained (without taking any costs) when it's her leaving you.
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