Buy to Let Mortgage vs Residential

Gaining a thorough understanding of the difference between a Buy to Let mortgage vs residential mortgage is really important if you have any future plans to buy a property. Although both products are designed to help you purchase a home, they are intended for very different purposes and due to this both come with their own lending criteria and affordability checks along with differing financial considerations.

Choosing the wrong type of mortgage can lead you down a path of delays and additional costs or even your application being declined completely. Whether you are buying your first home, are planning to become a landlord or you are considering keeping your current property when you move house, grasping an understanding how these mortgages differ will help you make an informed decision moving forward.

In this guide, we will fully explain the key differences between Buy to Let and residential mortgages, who each product is designed for and how an independent mortgage broker can help you find the right option.

What is a Residential Mortgage?

A residential mortgage is one that has been specifically designed for people who are buying a property they intend to live in as their main home.

Whether you are a first time buyer or you are moving home, a residential mortgage will be the most suitable option nine times out of ten if you will be occupying the property yourself.

Lenders will assess residential mortgage applications by looking a range of factors such as:

• Your own personal income.
• Your regular expenditure.
• Your credit history.
• Your existing financial commitments.
• Your current employment status.

The aim is to make sure that you can comfortably afford the monthly mortgage repayments.

What is a Buy to Let Mortgage?

A Buy to Let mortgage is one that has been specifically designed for investors who are purchasing a property in order to rent it out rather than live in themselves.

Instead of focusing primarily on your personal income, lenders will place much more a greater emphasis on the expected rental income that property is likely to produce and whether this will be enough to cover the mortgage payments comfortably.

Buy to Let mortgages are usually used by landlords who are looking to generate rental income or build up a property investment portfolio.

Buy to Let mortgage vs Residential Mortgages

Although they do appear quite similar, there are several important differences between these two  types of mortgage

Purpose of the property

The biggest difference is how the property will be used.

With a residential mortgage, you purchase with the full intention of living in the property yourself.

When with a Buy to Let mortgage, you are purchasing the property as a financial investment which will be rented out to tenants.

Something to be aware of is that using a residential mortgage for a property that is being rented out without your lender's permission could breach your mortgage conditions.

Affordability assessments

Residential mortgage affordability is mostly based on your own personal income and your current expenditure.

Buy to Let lenders will usually be assessing whether the expected rental income will be at a sufficient level to allow it to cover the mortgage payments comfortably. Some lenders will also be looking into your own personal income, but rental income is often the primary factor.

Deposit requirements

Residential mortgages are usually available with relatively small deposits, depending on your circumstances and the specific lender’s criteria.

Buy to Let mortgages will usually require a larger deposit, with many lenders expecting it to hit somewhere in the region of 25 per cent of the property's market value.

A larger deposit may also help you access more competitive interest rates. If you are still working out your budget, our guide explains exactly how much deposit you will need to get a Buy to Let mortgage and how your deposit can influence the products available. 

Interest rates

Interest rates will vary depending on current market conditions and your own financial circumstances along with the lender you choose.

Historically, Buy to Let mortgage rates have usually been slightly higher when compared with residential rates because investment properties are considered as a higher risk to lenders.

However, every application is very different, which makes comparing products across the market worthwhile.

Regulation

Residential mortgages are fully regulated because they are intended for owner occupiers.

Most standard Buy to Let mortgages are not regulated in the same way that residential mortgages are, as they are considered business investments.

However, in certain situations, such as consumer Buy to Let mortgages, may be subject to additional regulation depending on your circumstances.

Need more info on this, make sure your read our full guide on consumer Buy to Let here

Are You Allowed to Live in a Buy to Let Property?

No, you are not, as a Buy to Let mortgage is specifically designed for properties that will be rented to tenants.

If you do intend to live in the property yourself, you will usually be required to have a residential mortgage in place.

If your circumstances do change for any reason after you purchase the property, you should always speak to your lender before you make any changes to how the property is being used.

Can You Rent Out a House with a Residential Mortgage?

It is possible, but you should never just make the assumption that this is allowed automatically.

If you do decide to rent out your home, your lender may offer what is known as Consent to Let, which allows you to rent out the property for a temporary period while keeping your residential mortgage.

If renting the property becomes a longer term arrangement, your lender may then require you to switch across to a Buy to Let or consumer Buy to Let mortgage.

Speaking to your lender directly or getting independent buy to let mortgage advice before letting your property is always recommended.

Which Mortgage is the Right Choice For You?

The right mortgage will completely depend on the plans that you have for the property.

A residential mortgage is generally be the most appropriate if:

• You will be living in the property for the foreseeable future.
• The property you will be purchasing will be your main home.
• You are remortgaging the home you already occupy.

A Buy to Let mortgage will likely be a more suitable if:

• You are purchasing an investment property.
• You intend to rent the property to tenants.
• Your primary objective is generating rental income.

If your circumstances are slightly more complex, such as keeping your current home while you are looking to also purchase another property, there may be various different options available to you depending on your situation.

What Do Lenders Look Out For?

Although every lender on the market will have their own criteria, the most common factors they assess are:

• Your income and affordability.
• Your credit history.
• The deposit you have available or the equity you have in your property.
• Current employment status.
• Rental income, where applicable.
• The intended use of the property.

Meeting one lender's criteria does not necessarily mean another lender will automatically reach the same decision.

This is one of the reasons why so many borrowers will choose to seek independent mortgage advice before applying.

Why Use An Independent Mortgage Broker?

The more research you do around mortgage lending, the more you will notice that products and lending criteria vary considerably between lenders.

An independent mortgage broker can help you to compare products from across the market and help you explain which options are the most suitable for your own unique circumstances.

Vincent Burch provides independent, typically fee free mortgage advice and takes the time to understand your goals before recommending appropriate mortgage solutions.

Whether you are buying your very first home, or investing in property, having professional guidance can help to make the whole process simpler and can reduce unnecessary delays.

Conclusion

When comparing a Buy to Let mortgage vs residential mortgage, the most important factor to keep in mind is how you intend to use the property.

Residential mortgages are specifically designed for people who are buying a home to live in, while Buy to Let mortgages are intended for investment properties that will be rented to tenants.

Understanding these differences can help you to choose the right mortgage from the outset and avoid complications later in the process.

If you are at all unsure about which mortgage best suits your circumstances, the experienced advisers at Vincent Burch can help you to understand your options and compare lenders across the market, helping guide you through every stage of your mortgage application.

Frequently Asked Questions

What is the difference between a Buy to Let mortgage and a residential mortgage?

A residential mortgage is for a property you intend to live in, while a Buy to Let mortgage is for a property you plan to rent to tenants.

Can I change a residential mortgage to a Buy to Let mortgage?

Yes. Depending on your circumstances, your lender may allow you to switch across to a Buy to Let mortgage or offer Consent to Let if the arrangement is a temporary one.

Do Buy to Let mortgages require a bigger deposit?

In many cases, yes. Buy to Let mortgages often require a minimum deposit of around 25 per cent, although this varies between lenders.

Are Buy to Let mortgage rates higher?

They can be. Interest rates depend on several factors, including your deposit, financial circumstances, the lender and market conditions.

Can I live in a property with a Buy to Let mortgage?

No. Buy to Let mortgages are designed for properties that will be rented to tenants rather than occupied by the borrower.

Can Vincent Burch help me choose the right mortgage?

Yes. Vincent Burch offers independent mortgage advice and can compare products across the market, helping you find a mortgage that suits your individual circumstances.