Circumstances change and sometimes it makes sense to convert your mortgage. Converting a residential mortgage to a buy-to-let mortgage is certainly legal and could be financially beneficial. Here are five common problems revealed during this conversion.
Modern UK financial instruments allow homeowners to choose from a wide array of mortgage types and options. One of the primary benefits of buy to let is having a tenant make your monthly mortgage payments. If you want to start leasing out your property, you should convert your residential mortgage to buy to let to avoid potential fraud charges.
1. Zoning Laws
Each UK town or city has its own zoning ordinances, regulations and laws. If you try to rent out your residential property, then the government might have some problems with it. Many older properties can become rental properties with government authorisation.
2. HM Revenue & Customs Taxes
Property taxes are likely to differ based on whether you are a homeowner or renter. The tax deductions, limits and forms might all be slightly different. HM Revenue & Customs might levy tax penalties if your housing status is not accurate.
3. Ownership versus Tenancy
Home ownership involves the granting of rights and duties that are not allowed by tenants. Should homeowners want to, they can have landscaping and other renovation done on the property. This could include anything from planting fresh grass in their backyard (after they find out sod cost in the area), getting the exterior painted, to getting a home addition added to the property. Tenants, however, would not have the same authority over the place they are currently residing in. If they want any modifications, they would need to request the owner to do so. Also, the city might need to know if the occupant owns the property or is leasing it during some utility infrastructure project.
4. Financial Risk Assessment
Banks (mortgage lenders) will calculate the risk of your home loan during the application process. Generally, the purpose for your loan will be listed. The banking risk assessment of your mortgage is likely to change for residential versus a buy to let mortgage.
5. Mortgage Characteristics
Each UK financial institution has very strict rules for the characteristics of its mortgages, including loan to value, mortgage payments, repayment schedule and interest rates. If your property is converted from a residential mortgage to buy to let mortgage, you should expect a change in the terms and conditions.
Lender Can Claim Fraud
Converting a residential mortgage to buy to let can be advantageous. If you lease out your property with a residential mortgage, your bank could claim fraud. The lender could revoke the loan and charge you financial penalties.