A buy-to-let mortgage is a loan for purchasing a property that will be rented out to tenants rather than lived in by the owner. Buy-to-let mortgages usually have higher interest rates and higher fees than standard residential mortgages, and the lending criteria are different.
Buying a rental property is seen as a business transaction, so there are some important differences between a buy-to-let and a residential mortgage:
If you’re buying a property to rent, you will need to take out a buy-to-let mortgage rather than a standard residential mortgage. Residential mortgages are only intended for owner-occupiers. If you buy a property with a residential mortgage but you rent it out, you’re likely to be breaching the terms of your contract, and you may be hit with charges or even asked to repay your loan early.
However, there are some exceptions. If you buy a property to live in but later your situation changes and you decide to rent the property out (for example you move out to live with a partner), you may not need to remortgage. You must tell your mortgage lender as soon as the situation arises, and they may agree to leave your existing mortgage in place but give you consent to let the property. They will want to make sure that you have a genuine reason for making the request, and that you didn’t intend to rent the property when you first bought it. They may ask you to pay an administration fee and/or increase your interest rate.
It’s important to note that even if you plan to rent the property to friends or family, you still need a buy-to-let mortgage rather than a standard residential mortgage. However, many mortgage providers are not keen on family rentals, and different loan conditions may apply. If this is what you plan to do, it’s a good idea to seek professional advice.
Have you hit any stumbling blocks with taking out a buy-to-let mortgage? Tell us in the comments.
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