Re-Mortgaging to a Buy to Let Mortgage to go Travelling - Questions Including About Equity

Leon12

Hi All,
I am considering taking 18 months out starting from around this time next year to go travelling, coronavirus permitting of course. This is something I would very much like to do and I am fortunate to have savings which would allow me to do this. I own my own flat and am 1 1/2 years into a 5 year fixed term mortgage. After lots of research into my options, I have come to the conclusion that changing to a buy to let mortgage and renting the flat out whilst I am away is the best option and the one I would like to pursue as I want to still have the flat so I am able to move back into it when I return. I am aware that being a landlord is not straightforward and I have read about all of the requirements this entails so I am well researched into that side of things and I will also use an agency to manage the property whilst I am away. 
To add to the above, there is a small chance that I may be made redundant around June time next year for a non coronavirus related reason which is further making the travel prospect more appealing. Whilst I have found a lot of the answers I require relating to all of this through my research, I still have the below questions and would be most grateful for any help and advice. So:

• From the research I have done, I am aware that a lot of But To Let mortgages ask that you have a minimum salary of £25,000. I earn comfortably more than that at the moment but obviously if I was made redundant that would drop to £0. Despite knowing that I want to go travelling, there is a strong possibility (long reasons) that I may only be able to make the final decision after actually being made redundant and therefore at a point when I will have a salary of £0. Could this be a big problem? I think I am correct in saying that some providers will offer Buy To Let mortgages to people with £0 salary? I am aware of the rent cover requirements that would have to be met with a BTL mortgage and I would be able to achieve a rent that comfortably meets event the strictest of these so that isn't a problem, it is just the salary point that I am concerned about.
• Strange question but would changing from my current standard residential mortgage to a Buy to Let Mortgage count as a remortgage? So is moving to a Buy to Let a remortgage / does a Buy To Let mortgage count as a remortgae? I ask as I am with Metro Bank and they have better Buy To Let mortgage rates for existing customers but as a current standard mortgage holder with them (and not a BTL mortgage holder) would I count as an existing customer? Or would I have to currently have a BTL mortgage with them to count as an existing customer? I dont want to ask them directly at the moment as I would prefer to only start speaking with them once I have made the decision to go travelling for sure.
• As mentioned above, when I return from travelling I would be looking to move back into my flat once I have given the tenants the correct amount of notice etc. As I will still own the flat, I will not have any cash deposit as such but will have around £90,000 in equity as I estimate the flat will have a market value of around £220,000 at that point and the amount remaining on my (what would be BTL mortgage) at that stage would be around £130,000. So again strange question but am I correct in saying I would need to be lent / would need to borrow £130,000 on a standard residential mortgage to be able to move back into my flat? Surely I dont need to have the £90,000 as a cash deposit right? Obviously when you buy a property to start with you need to make up its total value with a combination of mortgage and deposit but I think I am correct in saying that when it is a remortgage you only need to get a mortgage for the value of what is remaining on the current mortgage? I hope that makes sense and apologies if this is a silly sounding question, I am just having trouble getting my head around this one!
• Similar to one of my questions above but in the opposite way, will changing back from the Buy to Let to a standard residential mortgage after travelling count as a re-mortgage?

Thanks in advance for any help and advice - much appreciated.
Leon

hazyjo

Ask for Consent To Let rather than BTL, especially if temporary, and it's may mean you stay on current mortgage product and avoid huge fees of ending your current (long) mortgage product early.

dimbo61

Alot is going on in the world right now.
10 million people with Covid19 and over 500,000 dying.
Many other countries have very poor health care. Especially in the far East , Africa and South America.
So travel maybe limited for some time unless your going to sail round the world.

seradane

dimbo61 said:

Alot is going on in the world right now.
10 million people with Covid19 and over 500,000 dying.
Many other countries have very poor health care. Especially in the far East , Africa and South America.
So travel maybe limited for some time unless your going to sail round the world.

What is the point of comments like this? OP is clearly aware of what's going on in the world, and obviously his plans are very much contingent on travel becoming a thing again. He's not posting on this forum to be told that oh gee, coronavirus is a thing...

Anyway, to answer your question, if you get Consent to Let instead of changing to a BTL mortgage you avoid most of your above issues. Basically this is where your mortgage provider permits you to rent it out while remaining on your current mortgage. 

AdrianC

Leon12 said:

...I have come to the conclusion that changing to a buy to let mortgage and renting the flat out whilst I am away is the best option and the one I would like to pursue as I want to still have the flat so I am able to move back into it when I return.

You do know that it's far from guaranteed that you WILL be able to move straight back in, right?

Best case:
You go away for 18mo. Somebody moves in within a month of your departure.
You give them two months notice of your return. They move out, you move straight back in, and the place is as you left it. You've had 17 months rent, with the only major outgoing directly related to the rent being the agency's management cost. If you time it right, you may not even need to submit a tax return while you're actually away. July 21-March 22 rent wouldn't need declaring until the end of January 23.

Worst case:
It takes longer than you thought to find a tenant, but you do eventually. They report all sorts of niggles, and the agent gouges you on repair costs. You give them three months notice, because the covid restrictions haven't been repealed. You return... They're still there. You start to go through all the legals. Eventually, because the covid restrictions are still bottle-necking everything, a court hears the case and grants you possession. They've done a runner on the eve of the case, leaving a smouldering uninhabitable ruin.

greatcrested

Who is your current mortgage with? Someone with mortgage knowledge will be able to tell you the likelihood of that lender granting you CTL. Some lenders do so easily. Some never do, and some do provided xyz....

I'd re-iterate Adrian's point about the uncertainty of returning and moving back in- it can take time....

But you've researched the letting laws and procedures so you know that already.

Leon12

Hi All,
Thank you for the replies. To answer the points raised:

• The consent to let option was the first thing I looked at before started to research in detail Buy to Let. In an ideal world (and as has been suggested here), the consent to let option would be the bets as it means I would be able to stay with my current mortgage product and wouldn't have to get a BTL mortgage. The issue is though I would need Metro to grant CTL for at least 24 months where as there is information on their website under the CTL part which states the tenancy agreement must be for a maximum of 12 months which implies that they will only grant CTL for 12 months. I guess I could re-apply for it whilst on the road but I dont want to do that as if they say no I would have to cut short my trip. I would of course ask Metro Bank if they would do it for 24+ months but im not holding out any real hope that they would do that.
• I am of course well aware of what is going on in the world with Covid right now and my initial post eluded to that - seradane thanks for the backup! 
• Adrian C - I have researched the tax implications & need to do the self assessment and have that covered as my sister works for an accountants firm who have agreed to provide a self assessment completion service to me at a reduced rate so I am happy with the arrangements concerning that. In regards to your worst case scenario, I wouldn't go travelling to begin with if Coronavirus was still causing a problem / before or if there is a vaccine and therefore the Covid parts of your worst case scenario wouldn't apply.
• I have researched yes the laws etc and notice periods required in regards to getting the property back so I can move back into it when I return and whilst I acknowledge there is always risks with any rental property / tenants, I accept those risks and would be prepared to take them on. 
• My current mortgage provider is Metro Bank.

If anyone has any advice on my four bullet points I would be most grateful.
Thanks again in advance for any help or guidance.
Leon

Leon12

Is anyone able to help with this? If there is any advice on my bullet points in my first post please that would be really great! 

Many thanks, 

Leon

Thrugelmir

What's the contigency plan if the tenants default on the rental payments? 

If a long tenancy is granted (correspondingly CTL) then a lender will have difficulty in repossessing the property. Hence the limitation. 

Likewise annual review enables them to monitor the situation. 

[Deleted User]

Leon12 said:

Hi All,
I am considering taking 18 months out starting from around this time next year to go travelling, coronavirus permitting of course. This is something I would very much like to do and I am fortunate to have savings which would allow me to do this. I own my own flat and am 1 1/2 years into a 5 year fixed term mortgage. After lots of research into my options, I have come to the conclusion that changing to a buy to let mortgage and renting the flat out whilst I am away is the best option and the one I would like to pursue as I want to still have the flat so I am able to move back into it when I return. I am aware that being a landlord is not straightforward and I have read about all of the requirements this entails so I am well researched into that side of things and I will also use an agency to manage the property whilst I am away. 
To add to the above, there is a small chance that I may be made redundant around June time next year for a non coronavirus related reason which is further making the travel prospect more appealing. Whilst I have found a lot of the answers I require relating to all of this through my research, I still have the below questions and would be most grateful for any help and advice. So:

• From the research I have done, I am aware that a lot of But To Let mortgages ask that you have a minimum salary of £25,000. I earn comfortably more than that at the moment but obviously if I was made redundant that would drop to £0. Despite knowing that I want to go travelling, there is a strong possibility (long reasons) that I may only be able to make the final decision after actually being made redundant and therefore at a point when I will have a salary of £0. Could this be a big problem? I think I am correct in saying that some providers will offer Buy To Let mortgages to people with £0 salary? I am aware of the rent cover requirements that would have to be met with a BTL mortgage and I would be able to achieve a rent that comfortably meets event the strictest of these so that isn't a problem, it is just the salary point that I am concerned about.
• Strange question but would changing from my current standard residential mortgage to a Buy to Let Mortgage count as a remortgage? So is moving to a Buy to Let a remortgage / does a Buy To Let mortgage count as a remortgae? I ask as I am with Metro Bank and they have better Buy To Let mortgage rates for existing customers but as a current standard mortgage holder with them (and not a BTL mortgage holder) would I count as an existing customer? Or would I have to currently have a BTL mortgage with them to count as an existing customer? I dont want to ask them directly at the moment as I would prefer to only start speaking with them once I have made the decision to go travelling for sure.
• As mentioned above, when I return from travelling I would be looking to move back into my flat once I have given the tenants the correct amount of notice etc. As I will still own the flat, I will not have any cash deposit as such but will have around £90,000 in equity as I estimate the flat will have a market value of around £220,000 at that point and the amount remaining on my (what would be BTL mortgage) at that stage would be around £130,000. So again strange question but am I correct in saying I would need to be lent / would need to borrow £130,000 on a standard residential mortgage to be able to move back into my flat? Surely I dont need to have the £90,000 as a cash deposit right? Obviously when you buy a property to start with you need to make up its total value with a combination of mortgage and deposit but I think I am correct in saying that when it is a remortgage you only need to get a mortgage for the value of what is remaining on the current mortgage? I hope that makes sense and apologies if this is a silly sounding question, I am just having trouble getting my head around this one!
• Similar to one of my questions above but in the opposite way, will changing back from the Buy to Let to a standard residential mortgage after travelling count as a re-mortgage?

Thanks in advance for any help and advice - much appreciated.
Leon

At the point you apply for a BTL mortgage, that's if you decide not to go down the CTL route, then you will be at the point of resigning from your job/taking a sabbatical/however you're going to do it then you know your income is about to drop to zero which will be a material change in your circumstances and something you will need to declare to the lender.  As well as a minimum income some BTL lenders require you to be a home owner which you won't be because the only property you own will cease to become your home and be an investment property instead.  Lenders can also stipulate the the rent should be at least 125% of the mortgage payment and in some cases 145%.  Bear in mind that most BTL mortgages will prohibit you from residing in the property so you would need to time the change for when you are actually moving out. All these reasons are why CTL might be a better option for you.  It's usual for CTL to only last for 12 months when you'd then need to reapply for another 12 months or consider changing to a BTL.

Does it make a difference if it counts as a remortgage?  How are Metro Bank defining existing customer?  Is it someone who has any kind of financial product with them?

When you return from travelling you would need to get a large enough residential mortgage to pay the amount outstanding on your BTL mortgage.

Again, does it make a difference if going from BTL to residential counts as a remortgage?

Something else to consider are early repayment charges.  You're part way into a 5 year fixed term mortgage, what ERC would you need to pay to change to a BTL mortgage?  Likewise when changing back if you only intend to be away for 18 months you need to consider the ERC of any BTL mortgage you might get.

steampowered

I suspect moving from a residential mortgage onto a BTL mortgage would count as remortgaging. As you are only 1.5 years through a 5 year fixed term, that would trigger an enormous early repayment charge.

A typical repayment charge 1.5 years into  5 year fixed term would be 4%, so on a mortgage balance of £130,000 you are looking at a fee of £5,200. Getting consent to let would avoid let.

The other key thing to understand is that there is a risk that you might not be able to move straight into the property when you come back. Even if an extension to the tenancy is not signed, it will move automatically onto a rolling monthly tenancy which needs at least 2 months to terminate, and after that if the tenant refuses to leave it will take months to go through the courts.

Hopefully if the tenant knows from the outset that you will want the property back in 18 months time it won't be a shock to them and they will be co-operative. I guess the "worst case" scenario is that you have to rent somewhere else while you wait for the property to become available again.