You didn’t set out to be a landlord, but circumstances mean you find yourself owning a property you can let out. Maybe you have inherited a property, decided to live with your partner, or relocated your job for a while. Renting out your Brighton and Hove home, rather than selling up, can be a good way to generate a regular income. Doing so would make you what’s called an ‘accidental landlord’.
However, before you go any further, you have one important task – getting in touch with your mortgage provider. Usually, you will not be able to let a property with a residential mortgage. So that you can manage the situation to your best advantage, here are a few things Brighton and Hove landlords should know about changing from a residential to a buy-to-let mortgage.
A buy-to-let mortgage is designed for people who intend to rent a property rather than live in it. A residential mortgage will contain specific clauses forbidding you from renting. There are other differences too. Most buy-to-let mortgages are interest-only, meaning you don’t pay off any of the capital. Because they are considered riskier, buy-to-let mortgages will often attract a higher interest rate.
You’ll need to talk to your mortgage lender. If you want to rent out your home in the short term, your lender may allow you to go ahead with a ‘consent to let’ agreement.
To rent out your home long-term, you’ll need to switch your mortgage to a buy-to-let product and expect your interest rate to increase. You can either stay with your existing lender or move to a new provider if you can get a better rate elsewhere. You’ll need to determine whether moving lender will mean penalties or early repayment charges.
Whether your go with your existing mortgage company or remortgage, you’ll need to supply evidence regarding expected rental income. The lender will put your finances through a ‘stress test.’ To pass, the rent you’re charging will need to be 145% or more of the amount you pay towards your mortgage repayments. They may also query whether you are buying or renting another property or moving in with family or friends.
If you’re moving to a new house, renting out your existing Brighton and Hove property rather than selling it can have significant advantages. You won’t be in a chain when you find a place to buy, and you’ll be a more attractive prospect to sellers. In theory, the rental income from the property will cover your mortgage payments. It may also be enough to supplement your income too. You will also benefit from capital appreciation as the value of your property goes up over time.
Most second-steppers choose to sell their current property at the same time as buying their next home. However, the property market isn’t always ideal, and you may find your dream home before you have a buyer for your existing home. One option is to rent out your current home and use a let-to-buy mortgage to fund your new property. You can release the equity in your present mortgage to pay the deposit on your new home. The rental income will cover the let-to-buy mortgage repayments. You would get an additional residential mortgage to buy your new home, which your salary would finance.
Let-to-buy mortgages are very similar to buy-to-let mortgages. The difference is that buy-to-let mortgages are taken out by landlords looking to buy a property to rent out. Let-to-buy products are just for homeowners looking to rent out a property they have lived in so they can live elsewhere. Like buy-to-let mortgages, there will be strict eligibility checks, and there is much to consider around costs and the challenges of becoming a landlord.
You may wish to do this if you are relocating and aren’t sure if your move will be permanent or if you want to know a new area before deciding on a place to buy. In this scenario, you may also find it hard to find a mortgage deal. Again, it’s all about the risk. You will be paying rent on your new home, which may be more costly than your mortgage. If your tenant defaults, you may struggle to meet your payments.
Buy-to-let mortgage rates are usually higher than residential ones because of the level of risk involved. It is also likely that you will need more equity. You should do your research to find the most favourable rates.
It may be worth consulting a mortgage broker who specialises in the buy-to-let property market to find the best rates. They might have access to deals you wouldn’t find by researching yourself.
The mortgage market is ever-changing, so you should always ask your current lender about switching to a buy-to-let. Most lenders will consider your application., However, whether they accept it depends on their appetite for risk, market conditions, and whether you meet their specific eligibility criteria around affordability.
If you have a residential mortgage and wish to rent out your home, you must speak to your lender first and check the terms of your mortgage. You don’t necessarily need a buy-to-let mortgage because your lender may allow you to rent out your home for a period by obtaining something called ‘consent to let’.
If you want to rent your home out temporarily, your lender might give you ‘consent to let.’ This allows you to stay on your current residential mortgage while you rent your home out for a fixed period (often 12 months or until your fixed-rate mortgage ends).
Consent to let is aimed at accidental landlords who need to rent out their home due to a change in circumstances. If you believe the arrangement will last more than a year, you should consider switching to a bespoke buy-to-let mortgage.
Not illegal, but depending on your mortgage and the conditions attached, you may be breaking its terms unless you have negotiated consent to let with your lender.
If you neglect to tell your mortgage company, your lender can demand that the outstanding balance on your mortgage be paid in full immediately, and it can damage your credit rating.
Again, this depends on your mortgage provider and the terms of your residential mortgage. Some lenders won’t allow you to remortgage within six months of ownership, but it can also be longer. Consent to let may not be allowed until you have owned the property for a specific length of time. In addition, you will likely be faced with early repayment charges for making changes to your mortgage soon after taking it out.
The best way to get a rough idea of how much your buy-to-let mortgage might cost you is to use one of the many online mortgage calculators.
You can input a few details, such as the property’s value, how much you need to borrow, the term and the interest rate you are looking at, and it will work out your monthly repayments.
If you’ve found yourself in the position of becoming a landlord in Brighton and Hove, talk to us. We can give you plenty of advice about renting out property in the area, and explain more about the services we offer to landlords.
Do you have any questions about the topic above? Our team of experts is here to help in answering any query you may have.
Fueled by his desire to be the best, most reputable estate and lettings agent in town, Steve has spent his career cultivating The Property Shop. Steve prides himself on his authenticity, honesty, and knowledge-base which is emulated by The Property Shop and his team.
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