Is it possible to use Residential Mortgage For a Buy To Let Property?
Purchasing houses with the goal of renting them out is becoming more common than ever. Having a rental property, or a portfolio of rental properties, might appear to be a simple method to generate money.
When acquiring a house solely for the purpose of renting it out, you may need a buy to let mortgage.
What’s the difference between a residential mortgage and a buy to let mortgage?
A residential mortgage is for people who want to live in the house permanently. You’d have to apply for a buy-to-let mortgage otherwise if you wish to rent the property out.
Buy to let mortgages are generally considered riskier than residential mortgages since there is no guarantee that the property will always be occupied or that renters will pay on time.
This results in a lesser return on the property and may have an impact on how the mortgage is repaid. This isn’t to say that investing in buy to let properties isn’t a good idea.
As a result, buy to let mortgages typically need bigger down payments.
Typical Residential mortgages are on capital and interest repayment basis. When it comes to buy to let mortgages, landlords have the option to go for either capital and interest or just interest only repayment basis. Most landlords choose an interest-only mortgage, which means they only pay the interest, which is a far lower payment than a residential mortgage.
The 3 most common scenarios that lead to property owners getting the wrong type of mortgage:
- To begin with, and most clearly, the applicant will apply for a residential mortgage, either directly or through a mortgage broker, with the goal of letting the property. If one wishes to let the property then they should go for Buy to Let Mortgage.
- Second, many homeowners purchase a second property and convert it into their primary residence. The house they used to live in has been rented out. In this case, the homeowner should notify their lender that the first property is being rented out. In order to reflect the change in circumstances, the lender may or may not make adjustments to the current mortgage policy. The lender should always be contacted in any circumstances.
- Finally, many people quit their homes for various reasons in order to rent them out for additional income. The lender should be informed first before making such a decision as you might be in breach of contract.
The Penalties for using a Residential Mortgage for a Buy To Let Property:
It is entirely dependent on the lender, and each one is unique. The following penalties, on the other hand, are extremely real:
- Request that your loan be revoked and that your mortgage be redeemed immediately.
- Change your rates to a greater level to reflect their current Buy-to-Let items automatically.
- impose monetary fines
- Needless to say, the potential dangers seemed to be too great for my liking.
- The fines imposed by the lender are little compared to the penalties imposed by your Landlord Insurance provider.
Your Landlord Insurance will almost certainly be invalidated if you have the wrong mortgage. You would not be protected by insurance in the case of an emergency (for example, if your house burned down). Most insurers protect themselves by mentioning the policy’s terms and conditions that the policyholder has authorization to let from the lender.
Talk to a Mortgage Broker/Advisor:
Using the services of a seasoned buy to let mortgage broker/adviser may be quite beneficial in navigating the subtleties of various lenders’ terms.
Furthermore, specialised buy to let mortgage brokers may have access to mortgage options that you would not otherwise have, so it’s always worth speaking with one to see what rates they can offer!
If you’re hunting for a first time buyer mortgage and have some doubts or concerns, Mountview Financial Solutions will assist you in determining the right remortgage choices. Call us at 02080950120 for more details or send us an email at firstname.lastname@example.org for more information.