The next instalment in our FAQ series sees us advise a recently separated landlord who wishes to take residence in their property, which has a buy-to-let mortgage.
Q. My partner and I have separated and I need to move back into my old property, which is currently tenanted. The property has a buy-to-let mortgage and I plan on moving back in once the tenants vacate. What will happen to the mortgage?
A. You will need to review the terms of your buy-to-let mortgage carefully, as it is likely you will be in breach of your mortgage conditions if you occupy the property.
In the first instance, speak with your mortgage lender and try to come to an agreement that you may live in the property. The lender’s decision will be based on whether your income is sufficient to meet their lending criteria, as previously, the lender would have taken into consideration the monthly rental income when deciding how much to lend. The mortgage lender will now consider your annual income to see if you can continue to make your repayments.
Alternatively, you can redeem the current mortgage and take out a residential mortgage. This is likely to be the best option for you as the interest rate is likely to be lower as a residential mortgage is considered to be a lower risk.
In any event, you must make your mortgage lender aware of your intentions as breaching your mortgage conditions could have serious consequences.
Read more: FAQ Series: Is my partner entitled to half my house?
Buy-to-Let Mortgages Explained
Buy-to-let mortgages are specifically designed for landlords who want to buy property to let. They are not designed for people looking to buy somewhere to live themselves.
In many ways they are like ordinary mortgages, but have some key differences.
• Interest rates tend to be higher
• The minimum deposit for a buy-to-let mortgage is usually at least a quarter (25%) of the property’s value
• Fees tend to be much higher
• Buy-to-let mortgages aren’t usually available to those buying their first property
When taking out a buy-to-let mortgage, the amount you can borrow is linked to the amount of rental income you expect to receive. Typically, lenders require that monthly rental income is a quarter to a third higher than your mortgage payments (25–30%).
Buy-to-Let Mortgage Rules
While it isn't illegal to move in to a property that you own with a buy-to-let mortgage, it is usually a condition of the mortgage that you let the property to tenants.
If you breach these conditions, your lender could be within its rights to ask you to repay the mortgage in full, and to repossess the property if you’re unable to do so.
Similarly, if you have a residential mortgage and become an ‘accidental landlord’ (i.e. if you leave the country for work and wish to keep your home) it is vital to inform your mortgage lender and your insurer. It is also a good idea to consult an accountant or a tax adviser as there are tax implications involved in buy-to-let mortgages.
Read more: Rent Smart Wales – A New Law for Landlords and Letting Agents
Remortgage Your Property with Howells Solicitors
Howells Solicitors has decades of conveyancing and remortgaging experience, dealing with thousands of cases each year. We are well equipped to guide you through the process and ensure that all the legal elements are handled smoothly and efficiently.
If you are looking to remortgage a property for whatever reason, call us on 0808 178 2773 for more information.
