How to turn your residential property into a buy to let property

August 22, 2018

You may never have considered it, but your residential property could be a stepping stone into buy to let investment.

The process of turning your residential property into a buy to let is relatively easy and straight forward, even more so if you do not have a mortgage on it.

You can use the equity in your residential property to “seed” deposits for more properties and start building a buy to let portfolio, if that is something you are looking to do.

If the market is stagnant where you live, turning your residence into a buy to let, rather than waiting for a sale, means that you can still move to a new home.  It can also be an option if a chain breaks down, and the sale of your house falls through.  Renting out your property, instead of selling it, can allow your onward sale to continue.

Many people are also choosing to use the family home in this way when down-sizing as there are capital gains tax benefits as well if you later sell an investment property that you previously lived in.

People also moving abroad often choose to let out their UK property so that they can maintain a “foothold” in the UK market – one of the most vibrant in the world.

We’ve put together a few tips of how to convert your residential property to a buy to let from a financial perspective, but, as ever, seek professional advice from a regulated broker to fully understand what is involved:

When your home has no mortgage on it

If you have no finance on your property, you can rent it out as soon as you move elsewhere.

If you need a deposit for your new residence, then you could consider taking out a BTL mortgage on your home to release equity to use as a deposit for your next home.

To find a suitable BTL mortgage, you can contact your bank – who will have limited products – or go through a mortgage broker who has access to the whole of the market.  These will include attractive products from specialist BTL lenders who you won’t find on the High Street.

While arranging your BTL mortgage, you may also need to arrange a residential mortgage, so it makes sense to work with an FCA regulated mortgage broker who can undertake both transactions for you and make sure everything runs smoothly and is co-ordinated.

When your home has a mortgage on it

There are two possible options here:

1.  You can contact your current lender and ask for what is known as “consent to let”.  This means that your lender gives you permission to rent out your property.  They may charge a fee for this and/or they may increase the interest rate slightly.

There is no guarantee that your lender will agree to this, and, if they do, it is worth remembering that it is likely to be a temporary arrangement and the lender may not re-new the consent to let indefinitely.  They will review it each year, so you may find that you have to consider option No. 2 further down the line.

“Consent to let” may be worth considering if you believe that you may one day wish to return to the property – for instance, if you are moving abroad for work for a contract that is a finite period – or you are moving somewhere else due to changes in your circumstances which may be temporary.  It keeps open the option to return to live at the property.

2.  You can apply to your current lender or contact a broker for a buy to let mortgage to be taken out on your property to redeem the residential mortgage.

If your home has a lot of equity in it, and the rental income supports additional borrowing, you may be able to release additional equity which you could put towards a deposit on your new residence, after paying off your residential mortgage.

The net income you receive could also help towards the mortgage on your new property.

It is worth noting that, if you took out a buy to let mortgage, and then later wished to return to live at the property, you would not be able to do so without changing back to a residential mortgage, as it would be against the Terms and Conditions of your Buy to Let mortgage to live there yourself.

The BTL lender will want to see that you have a new residential address lined up to move to, so they can be clear that you are genuinely moving out of the property and renting it out.

You will need to take out specialist buildings and landlord insurance on your old property, as your residential policy will not cover letting activity.

If you are thinking of doing this, Northwood can assist the whole process by helping you find a new home and also then letting out your old property for you.

If you have a busy life and don’t want to get involved with tenants and property maintenance, Northwood’s fully managed service would be ideal.  We take over the complete running of your property including tenant selection and referencing, rent collection, repairs, maintenance, and compliance requirements, leaving you free to enjoy your new home!

For extra peace of mind, you may like to opt for our market-leading Guaranteed Rent Service which pays the rent regardless of whether the tenant pays or not or if the property is void.

For some people, it makes sense to keep a property rather than sell it.  They may have an emotional attachment to the property, or want to keep their options open to be able to live there again in the future, or they may see it purely as a way to move on without waiting for a sale, while keeping an asset that can help produce income going forwards and also build additional equity over time.

Whatever your reasons for doing this, it would be advisable to seek professional mortgage and tax advice to make sure you do this in the most efficient manner possible, and your local Northwood office can recommend suitable advisors in this regards.

Find your nearest Northwood office >>> here.

Northwood is one of the largest and most recognised estate agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.

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