Buy to let mortgage
Whether you are a property expert with a full portfolio of properties or a first time investor, the principles of buy to let mortgages are very similar.
Ultimately you will want to get the very best rates for you buy to let mortgage or mortgages and for the process to be as simple as possible. There are literally hundreds of buy to let mortgage deals and so you can quite easily end up paying more than you should.
We are a buy to let mortgage specialist with over 20 years of expertise in helping individuals or portfolio landlords.
If you need advice to get the best buy to let mortgage rates then you can call 0330 118 8188 or CLICK HERE.
What is a buy to let mortgage?
The term buy to let mortgage (BTL) is most commonly used for people who are buying a property to rent out.
You would normally be called a ‘property investor’ if you are getting this type of mortgage because this is not your main residence. Buy to let mortgages can be used to purchase a single property or multiple properties (property portfolio).
There are a number of different rules for buy to let mortgages compared to residential mortgages because of the purpose of the loan.
People will often have a residential property which is their main residence and then one or more investment properties that they let out. You would therefore have an income that you generate from your investment properties from your tenants (occupiers).
There are also several different types of buy to let mortgage:
- Single property
- Multi property (portfolio)
- Limited company buy to let
- Student buy to let
- Commercial buy to let
Each of these might have slightly different lending criteria based on the purpose of the loan.
How do buy to let mortgages work?
A buy to let mortgage can be either a new property investor taking their first steps in to the investment market, or an existing investor with one or multiple properties.
There are a few simple rules that apply to this type of mortgage that make it a buy to let:
- Rental – the property should be used an investment with a rental income (or rental yield) from a tenant
- Tenant – any occupier would be classed as a tenant and therefore would not own the property
- Landlord – owners are classed as landlords and will be responsible for mortgage payments and certain other payments
- Lender – the mortgage lender would lend on a buy to let basis rather than on a normal residential basis
- Deposit – most buy to let mortgage deals will require a minimum deposit or equity to be 25% of the value of the property
- Interest only – the most common mortgage type for buy to let is interest only as the property will usually be sold to repay the capital
- Tax treatment – tax will usually be charged on any profit that you make and any capital gain when the property is sold
How can I get the best buy to let mortgage deals?
Rates for buy to let mortgages can vary dramatically from one lender to another as well as depending on your circumstances.
It’s important to make sure that you pay the lowest rate possible to get the most amount of profit from your rental income. Taking out the wrong buy to let mortgage can easily eat in to your profit and make property investment much less appealing.
There are some quite simple steps that you can follow to get the very best buy to let mortgage deals.
- Buy to let mortgage specialists – you can get advice from a mortgage advisor or broker that specialises in buy to let mortgages
- Improve your credit score – buy to let mortgages will still go through the same credit checks as residential mortgages so it is best to have a good credit score. You can improve your credit rating over time by organising your finances
- Get quotes from multiple lenders – a whole of market broker will have access to more deals and rates than a single tie lender or bank. By getting a range of deals you can clearly see which lenders are best for you
- Check fees and charges – some lenders and brokers will charge different fee scales and therefore you should check what you are likely to pay
Who is eligible for buy to let mortgage?
Typically there are several standard requirements that most lenders will have for buy to let mortgages. These requirements can vary from one lender to another but most will be fairly similar.
- Your age: the normal minimum requirements for buy to let mortgages is for you (the borrower) to be Over 21 years of age
- Credit history: most mortgage applications will require a credit search as part of the mortgage approval so your credit score and payment profile will be considered
- Deposit or equity: there is often a minimum deposit or equity requirement of 25% of the value of the property to be mortgaged
- Rental income: as mentioned earlier in this section there is often a rental requirement for buy to let mortgages
- Income: it is sometimes a requirement that the borrower must have a minimum income which is usually £25,000 and this is especially more important for people with no previous buy to let experience
What to consider before choosing your buy to let mortgage?
There are also several other key financial elements to consider before you apply for your buy to let mortgage.
- Tax treatment – you’ll need to consider the tax implications and treatment for any buy to let property or properties. There are elements of tax to be paid on both your monthly rental income and when the property is sold
- Rental costs – most rental properties will require you to pay monthly costs and expenses that will erode some of your profits. Some of the main costs will include management fees, finding tenants, insurances, and general maintenance
- Periods of no rental – there may also be periods of time where your property may not have a tenant and therefore no rental income. During these periods you will need to have a surplus to be able to fund mortgage payments and all other expenses
Let to buy mortgage
The term let to buy might seem quite strange or confusing but the principle is extremely simple.
A let to buy mortgage does exactly what it says and is where you would ‘let’ your existing (residential) property to ‘buy’ a new property. You are therefore converting your current residential mortgage to a buy to let mortgage, and take out a new mortgage on your new home.
You would normally need a minimum amount of equity in your home to be eligible for this type of mortgage which is usually 25%, so the same as buy to let.
Buy to let mortgage comparison
You can compare different buy to let mortgage deals in a number of ways to find the best rates and lowest monthly payments.
There are a few ways to compare the best buy to let mortgage rates and ultimately help you to save money. You can either search for the best rates yourself or you can speak to a mortgage broker like us to do the work for you.
Here are some of the Pros and Cons to comparing buy to let mortgage rates:
1) Speak to a mortgage broker or advisor
- Often will have a panel of lenders to look at for you
- More deals and rates to access lower payments
- Will also be able to get remortgage rates with existing lenders more quickly
- Can get deals with lower fees and charges
- Much less work and time processing the applications
- Less chance of being declined or refused a mortgage
- Mortgage advisors will often charge a fee
- You might be able to get a lower rate applying direct or online
2) Speak to your bank or building society
- Can be easier if they already have your banking information
- Might have exclusive deals that aren’t available elsewhere
- Potentially less evidence is going to be required
- Only have deals available with one lender so less choice
- Higher chance of being refused or declined
- Fees can be higher if only one lender
- Much less choice and flexibility than searching whole of market
- Complicated or difficult applications can be impossible
3) Apply online through an online broker
- Can be completed at your own convenience and privately
- Some deals may be available online that aren’t available elsewhere
- Fees can be lower (especially mortgage broker fees)
- Higher chance of decline or being refused a mortgage
- Can be very time consuming
- Little or no help completing paperwork and gathering information
- Applications may take longer to complete with no support
- Not good for complicated or difficult applications
You should always consider which route is best for you and be extra careful if your circumstances are complicated.
Can you get buy to let interest only mortgages?
Most buy to let mortgages are set up on an interest only basis, purely because it is an investment and the property is usually sold to repay capital.
There are a couple of key things to consider when you look at your buy to let mortgage:
- Capital & interest repayments – are my repayments going to be affordable if I take my buy to let mortgage on a repayment (or capital and interest) basis? If you are repaying the capital as well as the interest then your mortgage payments will usually be considerably higher
- End of mortgage term – what are your plans for your investment property (i.e. will you keep it or sell it) during the term of the mortgage and at the end of the term? Some investors will have a portfolio of properties that might also be a mix of repayment and interest only mortgages
- Lenders – some lenders are less inclined to lend to investors on an interest only basis than others, so you should always check. You might need to look at specific lenders that specialise in buy to let mortgages as well
- Tax implications – there are also some potential tax implications for buy to let mortgages on the repayments as well as any profits when you sell. If you are repaying your mortgage then there could be more tax to pay (Capital Gains Tax)
For more information on interest only mortgages CLICK HERE.
Buy to let mortgage for limited company
There are some recent rules and legislations that have made it more beneficial to create a limited company to buy, sell, and manage buy to let properties.
There are certainly going to be implications and rules for doing it this way so you need to be very careful about how you do it. Some of the main points to consider are:
- Limited company (must be for the sole purpose of property management)
- Tax and accounts (you will need an accountant and full company accounts)
- Stamp duty (different stamp duty rules for limited companies)
- Mortgage rates (rates for limited company buy to lets can be higher)
You should carefully consider each option before you choose to set up a limited company for your buy to let portfolio. Once you have chosen to go down this route then it can be difficult or expensive to change.
What are buy to let mortgage requirements?
There are a couple of common requirements for buy to let mortgages that are slightly different to residential mortgages.
- Minimum deposits: due to the nature of a buy to let mortgage and the rental requirements for affordability, you will usually need a minimum deposit of 25% to be eligible (range between 20% to 40% depending on the lender)
- Mortgage type: most buy to let mortgages will be taken on an interest only basis for tax purposes and to fit with the borrowers affordability
- Affordability: your buy to let property will also need to be valued on the basis of potential rental income to ensure that it is appropriate to be able to afford the mortgage repayments and other charges
Buy to let mortgage broker
It is often far easier and quicker to get a buy to let mortgage through a broker that specialises in buy to let.
There are a number of reasons for this but the main one is that you will have their experience and expertise to complete your application. The actual process of applying for a buy to let mortgage can sometimes be complicated and require a certain level of expertise.
Some brokers aren’t experienced in this area so it’s important to get the right advice from someone who knows the market.
A buy to let mortgage broker is also more likely to know which mortgage lenders offer the best deals and which are likely to accept your application. There are many reasons why your application might not be successful and a specialist will understand this better than most.
How many buy to let mortgages can I have?
There are no actual rules currently for the maximum number of buy to let or investment properties and mortgages that you can have.
You would usually be classed as a ‘portfolio landlord’ with four or more mortgages based on industry terms. There are some lenders who will set certain limits for buy to let mortgages for an individual, which is usually between 3 and 5 mortgages.
You may also have a limit of the amount of money that you can borrow when combining your mortgages (e.g. Maximum of £3million).
How long does a buy to let mortgage take?
The amount of checks and requirements for buy to let mortgages is very similar to residential mortgages.
You will usually find that the completion times for buy to let mortgages is therefore more or less the same as residential. It can be slightly more complicated when it comes to the tenancy checks and some of the legal requirements for buy to let properties.
Some lenders might require additional evidence such as EPC certificates, landlords insurance, tenancy agreements, etc.