Is Consent to Let Better Than Buy-to-Let?

When it comes to homeownership and the possibility of renting out your property, the choice of mortgage can be a complex one.

The two main options available are the residential mortgage with consent to let and a buy-to-let mortgage.

But which is the right choice for you?

Many people ask, is consent to let better than buy to let? It's not actually that straight-forward.

This insight offers an overview to help you make the best decision.

Key Takeaways

• Consent to Let and Buy to Let are mortgage options available in different circumstances. Consent to Let is usually better in terms of interest rates and upfront costs, and it's obtained by seeking permission from your lender to rent out your property temporarily. Buy to Let mortgages are specifically for properties intended to be rented out long-term.
• Buy-to-Let mortgages are designed for long-term rental properties and typically have higher fees and interest rates. They require a deposit or equity of at least 25% of the property value, and the anticipated rental income should cover 125% of the mortgage repayments.
• While residential mortgage rates are generally lower than buy-to-let mortgage rates, buy-to-let mortgages offer the advantage of interest-only repayments, resulting in lower monthly payments and potentially higher income for landlords. However, the principal amount must still be repaid at the end of the mortgage term.

Is Consent to Let Better Than Buy-to-Let?

Consent to Let and Buy to Let are mortgage products available in different circumstances. Consent to let is only approved on an existing residential mortgage, meaning it is normally better in terms of interest rates and upfront costs. However, consent to let is only available if you're an accidental landlord.

If you're intentionally trying to become a landlord and buy a property, only a buy to let mortgage will be available.

A buy to let may be the only option, however, affordability rules are more relaxed than a residential mortgage and that might make the difference between being accepted or not.

Is Consent to Let the Same as Buy to Let?

No, Consent to Let and Buy to Let are not the same. Consent to Let refers to obtaining permission from your residential mortgage lender to temporarily rent out your property. It allows you to rent out your property without switching to a dedicated buy-to-let mortgage.

Where as, Buy to Let is a specific type of mortgage designed for individuals who purchase a property with the intention of renting it out as a long-term investment. 

Consent to Let

'Consent to let', also known as 'consent to lease', is permission granted by the lender for the homeowner to rent out their property.

This permission can be temporary or for a fixed period, depending on the homeowner's circumstances.

For instance, if a homeowner needs to work in another part of the country for a year, the lender might agree to 'consent to let', allowing the property to be rented out during this period.

Lenders may charge a one-off fee or increase the interest rate for the duration of the 'consent to let'. This essentially converts the residential mortgage into a temporary buy-to-let mortgage.

Buy-to-Let Mortgage

A buy-to-let mortgage is a loan for a property that the borrower intends to rent out. It's typically more expensive than a residential mortgage due to the perceived higher risk associated with rental properties.

To secure a buy-to-let mortgage, lenders generally require a deposit or equity of at least 25% of the property value. The anticipated rental income should also cover 125% of the mortgage repayments.

Comparing Consent to Let and Buy-to-Let Mortgages

The primary difference between a consent to let and a buy-to-let mortgage lies in the homeowner's intent and the duration for which the property will be rented.

If the homeowner plans to rent out their property for a short period or temporarily, a consent to let may be the ideal choice.

It avoids the need to switch to a buy-to-let mortgage, saving on arrangement fees and potentially higher interest rates.

On the other hand, if renting out the property is a long-term or permanent plan, a buy-to-let mortgage is likely more suitable. Although it comes with higher fees and interest rates, it's designed specifically for rental properties and may offer more flexibility and benefits in the long run.

Can You Switch From Consent to Let to Buy to Let?

If you currently have a consent to let arrangement on your property and you wish to switch to a buy-to-let mortgage, you will need to inform your mortgage lender about your intention.

A buy-to-let mortgage is specifically designed for properties that are rented out to tenants, while a consent to let arrangement allows you to temporarily let out your property while still having a residential mortgage.

Switching to a buy-to-let mortgage typically involves an application process where the lender assesses the property's rental potential, your income, and other factors. 

Is Consent to Let cheaper than a Buy to Let Mortgage?

In general, residential mortgage rates tend to be lower than buy-to-let mortgage rates. This means that the interest you pay on a residential mortgage is typically lower, resulting in lower monthly repayments compared to a buy-to-let mortgage.

Residential mortgages are designed for homeowners who intend to live in the property themselves.

However, one advantage of buy-to-let mortgages is that they often offer the option of interest-only repayments. With interest-only repayments, you only pay the interest charges each month and not the principal amount.

This can result in lower monthly repayments compared to a repayment mortgage, freeing up more income for landlords. It's important to note that at the end of the mortgage term, you would still need to repay the principal amount in full.

Can you Switch from Buy to Let to Consent to Let?

No, the lenders would not allow for this. It also doesn't make practical sense. If within the terms of your mortgage, you are already able to let out your property, you wouldn't need to apply for a further consent to let.

The only way you could end up on a consent to let is if you decided to live in your buy to let property yourself, you then remortgaged to a residential mortgage but changed your mind and asked for consent.

The Final Verdict: Is Consent to Let Better than Buy-to-Let?

There's no definitive answer to whether consent to let is better than buy-to-let, as the best choice depends on individual circumstances and even whether your lender would allow you to switch.

 However, by carefully considering your plans for the property, the costs involved, and the tax implications, you can make an informed decision that suits your needs and financial situation best.