1) That's up to Santander. You need to ask them.
I would bet my annual income that they will say no.
The whole point of CTL is to give you breathing space to place yourself into a position whereby you can adjust your circumstances without being penalised by a lenders early repayment charge. The lender does not want you to rent out a property on a residential basis when it is illegal to do so. A residential mortgage is intended to be used by the applicants on their main residence, the place where they will be living and so it gives official permission for you to rent the property on an assumed commercial basis (Consent to Lease) without you having to pay the penalty on your existing product and also take out another more expensive (but more suitable) Buy to Let product and by doing this it allows you to move to another property, buy another property, join in on a partners residential mortgage etc but they will not allow you to indefinitely use CTL or even to take out anopther product on the exuisting CTL as this will lead to illegalities and loss of profitable interest for the lender too
Once you have finished your contractual period on your mortgage then the lender will not want to renew the CTL as it can now make you take the correct and more suitable mortgage for the property if it is to be rented. It can a higher profit from you as a commercial product and charge the correct fees but most importantly the buy to let product legally allows the property to be rented to paying tenants where as a residential mortgage is based on it being your main residence. If you are living in another property (as per electoral roll or evidence on credit file or postal records) then how can another property be your main residence and have a residential mortgage on it. To claim another property as your main residence and to hold a residential mortgage on the other property (without consent to lease) is mortgage fraud and lenders will act strongly against it with fraud markers on your credit file. This will likely lead to either refusal for any kind of insurance (including household and motor) or make it extremely expensive to do so and will also likely stop you getting a further mortgage or will revert you to very expensive mortgage rate products.
Question 2. As per Maxsteam's answer
Note: Santander are charging me £1124.00 to fix a rate of 4.99% (Buy to Let) starting March 2012.
Current repayment (3.99%) = £496
Forecasted repayment (4.995) = £565
I am sure that as the average rental per property in the UK is £550+ that the extra £69 per month you will have to pay for the mortgage will not be too badly missed. I am sure that when you lived in the house you did not complain too much about the first £496 per month that you were paying without the assistance of rent.
Welcome to ther world of rentals and more expensive buy to let mortgages.
**** Depending on your loan to value you will almost certainly get a better deal for buy to let with other lenders. Santander have only in the last week started offering BTL mortgages and so far they are ripping the ar$e out of it with rates and fees (fee are now extortionate for BTL anyway currently)...but I am sure that even in a few months they will have more reasonable rates and fees and products.