You may want to buy a property to live in on an interest only buy to let mortgage. Or you may want to move into a property you own with a buy to let mortgage on it, thinking it’s okay to live in it.
So can you live in a property with a buy to let mortgage? No you can’t live in a property with a buy to let mortgage on it, and if you do you’ll be in breach of your mortgage terms and conditions and will be committing a fraud. Most buy to let mortgages aren’t regulated and are assessed on the basis of interest rental cover rather than affordability.
What is the difference between a buy to let and a residential mortgage?
The critical difference between a buy to let and a residential mortgage is that buy to let mortgages are not regulated, whereas residential mortgages are regulated by the FCA.
But if you want a family member to live in the property you need to take out a regulated buy to let mortgage for them to do so.
There are other differences between a buy to let and a residential mortgage, which include the following:
- Buy to let mortgages tend to be interest only vs residential mortgages are capital and interest repayment loans.
- The amount of lending on a buy to let mortgage is governed by an interest cover ratio based on rental income. Whereas on a residential mortgage it’s restricted on a multiple of earnings.
- Interest rates on buy to let mortgages tend to be more expensive than on residential mortgages.
- First time buyers can get a Help to Buy loan alongside a residential mortgage. But this is not the case for first time buy to let buyers.
What do you need to do to be able to live in a property with a buy to let mortgage?
Often times property owners have a house that’s mortgaged on a buy to let loan and need to move in due to a change in circumstances. But property owners don’t always know that they are not supposed to live in the property with the buy to let mortgage still in place.
You must not move into your property until the mortgage is changed back to a residential mortgage. You can do this with the existing lender or remortgage the property with another lender.
This will cost in terms of remortgage fees. But it’s better to do this than risk the consequences of moving into the property before change the mortgage to a residential mortgage.
What are the consequences of living in a buy-to-let property?
The consequences of moving into a property you own on a buy to let mortgage:
- You will be in breach of the mortgage terms and conditions.
- The lender can call in the loan and require an immediate 100% repayment of the loan.
- You may have committed a fraud, which will be on your credit record for future mortgage applications.
- Your credit report will be affected by the breach. This may affect your future credit applications for loans, credit cards, bank accounts and insurance cover.
- If the mortgage is withdrawn by the mortgage company by them finding out you live in the property, you may struggle to get another mortgage to refinance the loan. This may force you to sell the property. But this process will be under extreme pressured circumstances. This is because the buy to let lender will be forcing the repayment of their loan.
The above list of consequences may sound a bit extreme. But you need to know how serious it could be if you accidently or deliberately move into a property with a buy to let mortgage secured on it.
Video on the consequences of living in your own buy to let property:
Can you get consent to live in buy to let property – Permission to live in BTL
Unlike a consent to let to rent out a residential property, it’s not possible to get consent to live in buy to let property.
Mortgage regulations are very strict regarding permission to live in a buy to let (BTL). Mortgage lenders have to follow strict guidelines set by the FCA.
Can you buy a property with a buy to let mortgage and live in it?
You cannot buy a property with a buy to let mortgage to live in. As this would be in breach of your mortgage application and would be deemed as a fraudulent application on your behalf.
Mortgage lenders sometimes carry out spot checks on properties. This is to check if the buyer is living there, so it’s not worth the risk.
You may face the same consequences listed above if you buy a property on a buy to let mortgage with the intention to live in it.
Why would someone consider using a buy to let mortgage to buy a home to live in?
The reason why someone would consider buying a property to live in on a buy to let mortgage is because buy to let loans tend to be interest only, thereby reducing monthly outgoings.
It’s much more difficult to find interest only residential mortgages than it is buy to let loans.
What about temporarily living in buy to let?
You can’t even live temporarily in your buy to let property and if you attempt to obtain a buy-to-let mortgage in order to immediately live in it this would be a breach of the mortgage conditions.
If your intention isn’t declared to the lender your actions could be classed as fraud and obtaining money by deception.
Is it illegal to live in your buy-to let property?
Although it’s not illegal to live in your own buy-to-let property, if you do live in it you will be in breach of your lender’s terms and conditions. If you intentionally live in your buy to let property you could be committing mortgage fraud.
If the lender finds out they may ask for an immediate repayment of the loan.
Problems that may face the switch back to a residential mortgage
- Your earnings may not be sufficient to obtain a residential mortgage to replace the buy to let mortgage amount. Residential mortgages are mostly based on a multiple of earnings. It might be at the point of changing, this may not be enough.
- Your employment status may have changed from employed to self employed. But your business may not have been trading for long enough to satisfy the lending terms. Lenders like businesses to have at least three years track record to support the loan application.
- Credit rating may have changed to an extent that makes it harder to get the mortgage you require.
- Other borrowings may restrict how much you can borrow.
- The property may have developed problems that may prevent lending. For example subsidence problems.
Can a relative live in a buy to let property?
A relative can live in a buy to let property. But the buy to let mortgage must be applied for as a regulated loan application instead of an unregulated mortgage.
If the family member moves out and you want to rent the property to non-relatives, you will need to remortgage to a non-regulated buy to let mortgage.
A relative can also live in an HMO property on an unregulated mortgage. But the relative cannot occupy more than 40% of the property.
Please don’t forget to read this before you leave…
Please don’t forget to also read this article to discover how you could save £71,475 on your next mortgage if you sell your house and rent before buying again. As I said earlier, even I was amazed when I did the calculations!
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