If you have a residential mortgage on your home and you’re considering letting it out you’ll need to make sure you have the right mortgage product or consent to let it out. It’s not illegal to rent out your home if you don’t have a buy to let mortgage, however it’s likely you’ll be breaking the terms of your mortgage product if you do.
The first step is to contact your current lender to see if it’s possible to rent out your property with the existing lender.
Consent to let
Most lenders will grant Consent To Let for a period, normally 1 year but sometimes up to 3 years, which is a great way to dip your toe into the world of being a landlord. This allows you to retain your residential mortgage and works well if, for example, you’re in a fixed period with your current mortgage and would be hit by early redemption fees if you wanted to end the mortgage early.
Transfer to a new Buy To Let mortgage product
Transferring to a new Buy To Let product could mean a different interest rate. Buy To Let mortgages are designed for rental properties as lenders believe that there’s more risk involved for them so interest rates tend to be a little higher. Many landlords opt for an interest only mortgage product, meaning you only pay off the interest element each month. This is a good way of keeping mortgage payments down although it means you’re not paying off any of the capital element of the mortgage.
Choosing a buy to let mortgage product
If you’re not in a fixed period with your current lender it’s best to shop around to make sure you get the best deal. Mortgage comparison sites are a good place to start or for a personal service you may engage with a mortgage broker who can source you the best buy to let mortgage product for you.
What if I move back in
If you decide to move back into the property after you’ve been letting it out and have transferred over to a Buy To Let mortgage you’ll have to let your lender know the situation. They might ask you to transfer back over to a residential mortgage and that could lead to early redemption fees if you are only part through the mortgage fixed period for example.
What information will I need to transfer to a Buy To Let
Lenders will normally look at the projected rental income for the property and will apply a ‘stress test’ to your finances to make sure you’re not stretching yourself too far and to minimise the risk for them. Normally lenders will require that monthly rent payments should cover at least 145% of the monthly mortgage repayments.
Would it make sense to transfer the property into a company?
Many landlords who have bought property as an investment have done so via a company instead of in their own name. There are less mortgage products available for companies however there are tax savings to be had by doing this. It’s likely LBTT will be due on the transfer and if some time has passed since you initially moved out of the property there may be some Capital Gains tax to be paid, but these costs should be considered against any longer term tax savings that could be made by owning the property in a company name.
If you’re a landlord in Edinburgh moving on from your home but considering holding onto it to rent out, please give us a call on 0131 221 0888 or email [email protected] and one of our experienced team will be able to help.