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Moving from an Interest-free mortgage to a buy-to-let mortgage

adingading Forumite
4 Posts
First Post
MoneySaving Newbie
I have been on the same Interest-free mortgage since 2007 but I have moved tenants in as I had to relocate. It is unlikely I'll ever move back in so I understand I need to change my mortgage type to buy-to-let?
I'm not sure what to start reading to familiarise myself with terms and to know what my options are?
What steps do I take and in what order to make the transition? I was going to start reading under remortgaging but is this different because of mortgage type? I imagine I will contact a mortgage advisor but want to familiarise myself with jargon and to give myself prior knowledge to know what to expect regarding costs incurred or what not to do etc. Finding this task daunting to do and not sure where to start.

Replies

  • MovingForwardsMovingForwards Forumite
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    Do you mean interest only mortgage not interest free?

    Best place is read through the threads on here, then come back and say what you are still unsure about as members would need to provide you a lot of information.
  • dimbo61dimbo61 Forumite
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    Most BTL mortgage deals are broker only.
    You need to know the current value of your rental property and outstanding balance.
    The better the LTV ( Loan to value ) the better the deal.
    Lots of hoops to jump through so a brokers help is invaluable
  • dimbo61dimbo61 Forumite
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    PS I am not a mortgage broker.
    I do have a BTL mortgage
  • MahsrohMahsroh Forumite
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    I'm not a mortgage broker or by any means an expert, other than currently having a BTL Mortgage that was originally a residential mortgage before I too relocated and rented the property out. 
    The first thing is, you don't necessarily have to remortgage but you do need to tell you existing lender who'll most likely put you on a Consent to Lease mortgage. However, they will charge a premium for this in terms of interest rate. When I first changed mine from a residential to a Consent to Lease the interest rate went from 3% above base rate (variable) to 4.94% above base rate. But I was in negative equity at the time as this was in the aftermath of the 2008 recession / credit crunch

    So, on the basis of the above, you're better going to a broker (I used London and Country when switching my Consent to Lease to a BTL) to find a BTL mortgage as you'll inevitably get a better deal. But (and this may be crucial) for anyone to offer you a BTL, you'll need a minimum 75% Loan to Value. If you're mortgage is interest only (I assume that's what you meant rather than interest free) then my only slight concern would be whether you have sufficient equity in the property to have 75% LTV. The fact you've owned the property since 2007 suggests there may have been sufficient movement in the property market that you do have the equity you'll need, but only you'll know this. 

    When I remortgaged mine I went from 4.94% above base rate to 2.38% fixed, and that was with 73% LTV, so even at 75% there are decent deals to be had. 
  • adingading Forumite
    4 Posts
    First Post
    MoneySaving Newbie
    sorry yes I meant interest only mortgage. Can't think how the word free got in there but hey - thank you for assuming correctly.
    Right, some terms to familiarise myself with so I don't feel overwhelmed when approaching broker. I remember I did have a consent to lease mortgage but in my ignorance thought it was a one-off fee. Hadn't realised that they assumed I had moved back in.
    Saying I need to know the property's value now - is that sale value or other? Just want to know what to state when requesting a valuer?
    The property is leasehold and there is a little over 50 years left, so I hope a broker will know what to do in that circumstance.
  • silvercarsilvercar Forumite, Board Guide
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    Sometimes it is a one off fee, sometimes it has a time limit.
    property value would be the value on the market now, look at similar sold prices from zoopla or rightmove.
    I think your 50 years remaining on the lease will be an issue. 
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  • trex227trex227 Forumite
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    Ouch 50 years, you might want to look into getting that lease extended as I would imagine it is going to seriously limit lenders you can change to. Also the lease being that low the value is going to be impacted a fair bit.
  • adingading Forumite
    4 Posts
    First Post
    MoneySaving Newbie
    Thanks all, I am now in the process of getting lease extended first before checking out a broker for a buy to let mortgage.
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