If you’re renting out property in Scotland, and you have mortgage, it is likely you’ll need a bespoke buy-to-let loan.
Some Scottish landlords buy property as an investment, with the intention of letting it out. For others the decision to become a landlord is a bit more accidental. You might have decided to move in with a partner and have a property to spare or you might be relocating but not ready to part with your previous home just yet, for example.
Before you rent out a mortgaged property, one of your first calls should be to your lender. This is because, in most cases, you won’t be able to let a property in Scotland with a residential mortgage.
Shifting to a buy-to-let mortgage could bring a few changes – the interest rate you pay may be higher, for a start. To help you understand buy-to-let mortgages in Scotland, we look at everything you need to know about moving your mortgage, when you become a landlord.
How is a buy-to-let mortgage different to a standard one?
As you might expect, buy-to-let mortgages are designed for rental properties rather than owner occupied ones. Residential mortgages almost always contain clauses prohibiting letting.
Most buy-to-let mortgages are also interest only, meaning you pay off the interest each month but not the loan itself.
Generally, lenders believe there is more risk involved with buy-to-let mortgages – because you might struggle to meet your payments if your tenant falls behind with their rent. For this reason, they often come with higher interest rates.
How is the situation different in Scotland to the rest of the UK?
Mortgages in Scotland work in much the same way as in England and Wales. However, there are different rules for landlords in the different UK nations. In Scotland you must register your intention to rent out property with your local authority before you start. Read more about being a landlord in Scotland.
Can you change a buy-to-let mortgage to a residential one?
This will be up to your lender and depend on the terms of your mortgage. If you can’t change your existing mortgage, you may need to move to a different lender or product which could mean early redemption fees.
What is consent to let?
When you contact your lender about renting out your property, they may suggest a ‘consent to let’ arrangement. This would allow you to retain your residential mortgage while you let your home for an agreed period – often for 12 months or until your fixed-rate mortgage period ends. Consent to let is useful if you wish to rent out the property in the short term, while you look for somewhere to buy or relocate.
What information will I need to change to a buy-to-let mortgage?
Your lender will need information about your projected rental income, along with any other money you have coming in. They will apply a ‘stress test’ to your finances. Usually, your rent will be expected to cover at least 145% of your monthly mortgage repayments. They may also ask questions about your living arrangements, whether you will be buying another home, renting one or moving in with someone else, to get a sense of your financial commitments.
What if I want to buy or rent another home and change my existing mortgage to buy-to-let?
Doing this has lots of advantages as it makes you a chain-free buyer and allows you to hold onto your home as a long-term investment. However, not all mortgage companies will lend to someone who already has a home loan – even if your rental figures stack up. This is because the loan can appear quite risky – if your tenant defaults on their rent you will need to meet the monthly payments for two mortgages. You may have the same issue if you wish to rent yourself, while letting your own property.
How do I get the best rates when switching to a buy-to-let?
As we’ve said, interest rates tend to be higher with buy-to-let and you may need to put down a bigger deposit, so you’ll need to do plenty of research, checking comparison sites and consulting a specialist mortgage broker or mortgage adviser.
Is it illegal to rent out a property in Scotland with a residential mortgage?
Though it’s not technically illegal, you could be breaking the terms of the mortgage contract you have signed. So, it’s important to contact your lender immediately to explain the situation.
How soon can you switch from a residential mortgage to buy-to-let?
This also depends on your lender and your mortgage terms, but it could be six months or longer, both for changing the mortgage and gaining consent to let. Plus, you might face early redemption fees.
If you’re an accidental landlord in Glasgow talk to us. We’d be happy to advise you about letting property in the city, and explain the services we offer to landlords.