Using A Residential Mortgage For a Buy-To-Let Property

Declaring A Buy-To-Let Property As Residential

It’s not unheard of, in fact, it’s common practice for many landlords to have a residential mortgage for a property they’re letting out, while they’re actually meant to have a buy-to-let mortgage. Apparently it’s called “mortgage fraud” – one thing is for sure, it’s against the terms and conditions of any mortgage lender I’ve heard of.

What’s the difference between a residential mortgage and a buy-to-let mortgage?

Simply, buy-to-let mortgages are specifically for properties that landlords let to tenants. Standard residential mortgages are specifically for properties that home owners want as their residential home(s).

Why do landlords get a Residential mortgage for a Buy-To-Let property?

Well, that’s the easy part.

It’s generally a lot cheaper to get a residential mortgage. Interest rates are typically lower and so are the product fees. This is the case because lenders see buy-to-let properties as higher risk.

The 2 most common ways of getting a residential mortgage for a buy-to0let property are as follows:

  • Firstly, and most obviously, the landlord will just apply for a residential mortgage either directly through a lender or through a mortgage broker. Lenders are generally none the wiser- how are they to know what the intentions of the home owner is?
  • Secondly, a lot of home-owners buy a second home, which they make into their residential home. The property they were living in before is let out. In this situation the home-owner should inform their lender that they’re letting out the property. The lender may or may not make changes to the existing mortgage policy, but they should still be informed because they will need to update their records.

Be wary of Mortgage Brokers

I’ve heard of many cases where mortgage brokers/advisers encourage their clients to apply for residential mortgages while knowing full well they’re going to let out their property.

The reason why brokers/advisers push their clients into doing it is kind of a no-brainer. Mortgage brokers typically get paid by the lenders for every mortgage that gets approved, so they want to get as many mortgages approved as possible. The thing is, residential mortgage rates are a lot more appealing/affordable for borrowers, so it makes sense for brokers to push their clients in that direction, or at least not entirely discourage the notion (when they strictly should).

The penalties for using a Residential Mortgage for a Buy-To-Let Property

It really depends on the lender, and each lender is different. However, the following penalties are not unheard of:

  • Revoke your loan and ask for immediate redemption of the mortgage
  • Automatically change your rates to a higher amount that reflects their current Buy-to-let products
  • Enforce financial penalties

In my opinion, it’s not worth taking the risk. The penalties enforced by the lender is not half as bad as the penalties your Landlord Insurance provider could enforce…

Home Insurance

Having the incorrect mortgage would most likely invalidate your Landlord Insurance. In the event of an emergency (e.g. property burns down), you would not be covered with insurance. Most Insurers cover themselves by stating in the terms and conditions of the policy that the policyholder has the lenders permission to let.

Talk to a mortgage broker/advisor

Using the services of an experienced buy-to-let mortgage broker/adviser can be invaluable in helping you through the nuances of different lenders’ conditions. Additionally, specialised buy-to-let mortgage brokers usually have access to mortgage deals you wouldn’t normally be able to get, so it’s always worth talking to one to find out what rates they can offer!

If you’re interested in talking to a mortgage adviser, click on the button below and fill in the simple form. A fully approved UK Buy-to-let Mortgage Specialist will be in touch to discuss your options/needs, and answer any of your questions. There is no obligation and receiving the quotes is 100% free. It’s as easy as that.

Get Buy-to-let Mortgage Quotes

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16 Comments- Join The Conversation...

Guest Avatar
David King 26th August, 2014 @ 06:26

Thanks for posting. A Residential Buy-to-let Mortgage is a secured business loan and an arrangement fee, as well as security and valuation fees will apply.

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Guest Avatar
Jameson Hartshorn 16th March, 2015 @ 17:15

I am buying a flat which has tenants in it. I am not going to renew their tenancy and will move into the flat when they leave. However they are contracted there until October 2015 (its now March 2015). Can I still go ahead with a residential mortgage to buy the flat ?

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Guest Avatar
Steph 30th March, 2015 @ 18:33

Hi Jameson,

You have to purchase the flat with vacant possession, which you will not be able to do if there is a tenant present. If you cannot purchase it with vacant possession you would need a buy to let mortgage. I would talk to you lender about this and see if there is anything you can do.

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Guest Avatar
jenny 2nd July, 2015 @ 16:20

I took out a residential mortgage and the lender I went with, agreed that I could let out so long as I paid a £100 fee. This was Natwest and allowed me to get a good deal. I'm hoping I can do similar as I remortgage/swap lenders soon.

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Guest Avatar
Naz 9th September, 2015 @ 15:20

my landlord wants to keep the utility bills in his name to;'prove ownership for his mortgage', is this legal? Does this mean he does not have a buy to let mortgage/ What are the consequences for me if I agree to this seemingly dodgy arrangement?

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Guest Avatar
James Quinn 3rd February, 2016 @ 23:17

We have just bought a new home and still have the old house and my existing Mortgage Company are happy for me to rent it out for 6 months. I have rented this out cheap to a friend as I do need to stay there for work reasons 2/3 times per week. Is it likely I need to change this to a BTL mortgage as its not my main home but I do frequently reside there?

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Guest Avatar
MARK 18th February, 2016 @ 11:37

The article above is factually incorrect. A BTL mortgage is easier to obtain than a residential mortgage. So as far as the "be wary of mortgage brokers...." type comment this is factually untrue and the author should really research facts. Also the "I heard from someone else.." type comments are irresponsible arguments to use on an internet. The opposite would be more of a reality these days, were by buyers are more likely to pretend to get a BTL mortgage to live in as a residential because they are easier to obtain.

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The Landlord Avatar
The Landlord 18th February, 2016 @ 11:46

@Mark
At the time I wrote the post, residential mortgages were easier to obtain. However, I'm aware that's changed over time.

Having looked at the date-stamp of this blog post, it was written in 2007, at the peak of sub-prime lending.

In any case, residential mortgages do offer much better rates, and many brokers don't discourage BTL borrowers from residential products on that basis, when they should. So I stand firm on the "be wary" comment.

8
Guest Avatar
Steve 27th March, 2016 @ 12:29

I'm buying a house (cash) which has tenants until Jan 2017 ,I want to buy another home (mortgaged ) as a residential until I can move into the other home .i am going to then let the mortgaged property ,so,which mortgage do I apply for residential or btl .?
Confused !!
Help please

9
Guest Avatar
Naz 24th April, 2016 @ 16:26

I rented a property which I am now sure was not buy to let, but the landlady kept the council tax in her name to show the ownership of the property, I spoke to her that can I transfer council tax in my name she said strictly not, I gave notice to that landlady that month and left the property. I am seeking your advice if I need to complain about this fraud where should I go? Thanks

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Guest Avatar
Jacky 7th May, 2016 @ 14:00

If I buy a house and live in there, and intend to rent out only some of the rooms by lodgement for example by something like spareroom.com or airbnb, can I ask for a Residential Mortgage or do I need to get a BTL mortgage?

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Guest Avatar
Aled 31st May, 2016 @ 14:40

Hi,

I bough my first property in January 2016 as I moved to Manchester for work. My company has now started making redundancies and I have been offered a new (hopefully lucrative) opportunity in Dubai which I want to take.

I have spoken to my Mortgage company and they say I either need to pay 10K to transfer to a BLT or apply for a consent to let which is likely to be declined as I haven't been a resident in the property for long enough.

What options do I have open to me? I am due to move to Dubai in July!!!

Thanks,

12
Guest Avatar
Justin 8th September, 2016 @ 14:43

Hi
I recently bought a property through a residental mortgage but my full intention was to let. Only problem was my broker definetly leant me towards the residential mortgage rather than BLT but I think the notion was that a first time buyer BLT will be really hard to come by....

Needless to say I pull push on with finding a tenant, inform the lender that the property is for let purposes and inform building insurance of the change...what else can i do..? can't be that bad a process

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Guest Avatar
vicky 18th January, 2017 @ 02:27

Hi,

I am looking to buy a flat for buy to let, but the interest rates are about 3.5% and the fees are about £2500, which is very expensive compared to a residential mortgage.

I have been advised to go for a residential mortgage and then change it to buy to let with permission later.

What are the risks in going for a residential mortgage to let out to tenants.

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Guest Avatar
Simon Pambin 18th January, 2017 @ 09:25

Who advised you? If what somebody down the pub, you should ignore them. If it was a professional adviser, you should report them.

Assuming you can find a lender who is gullible enough to offer you a residential mortgage on a second property in these circumstances, the most likely outcome is that your lender will simply refuse consent to let, so you'll be stuck with a property you can't let out (without paying the early exit costs for your residential mortgage deal and signing up for a buy-to-let mortgage).

Bear in mind also that, if you sign up for a residential mortgage when you know you're intending to let the property, you are committing fraud. If convicted, you probably won't actually go to prison for a first offence, but nobody will ever offer you a mortgage ever again.

The only way you can legitimately finance a buy-to-let with a residential mortgage is to secure it on your own home.

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Guest Avatar
paul 9th July, 2017 @ 20:20

i had a residential mortgage but let the property out last year the tenant has not been there a year yet ,i have informed my mortgage lender and they say because i do not earn £25000 a year i have to pay £300 pound a year to keep it as buy to let in case i move back into my property.I have also been informed that i can use anyone as a guarantor as long as the person and myself have a combined earning of £25000 and i don,t move back into my property within a year period, is this correct.

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