Updated 17th November 2021.
Buy-To-Let Mortgage Advisors
Buy-to-let mortgages changed because the government introduced higher stamp duty for additional properties and changes in the tax laws.
Most importantly, this was to slow down landlords purchasing properties.
However, because the demand for rental properties continues to be high. Therefore, buy to let properties are still perceived as an attractive and exciting investment.
We offer specialist advice for buy-to-let mortgages. Our advisors & the brokers we work with understand how to release the full potential from your property.
This includes looking at what your long-term goals are and what you want to achieve from each property.
What is a buy-to-let mortgage?
A buy-to-let mortgage is when you purchase a property to rent out to tenants and thus the purchaser becomes a landlord.
Firstly, the main aim is to rent out the property to make a profit. As a result of having a buy-to-let mortgage, the landlord isn’t allowed to reside in the property.
Secondly, If you are looking to rent your property to a family member then you would need to get a regulated buy-to let-mortgage.
Most landlords take out buy-to-let properties on an interest-only basis and use the rental generated as an income.
This also helps with affordability, as a result if for some reason the property isn’t rented out, as the monthly cost is lower than a repayment mortgage.
This isn’t always the case. similarly, some landlords with numerous properties will have some on a repayment method.
Buy-to-Let Mortgage Topics.
- What is a buy-to-let mortgage?
- How do I get a buy-to-let mortgage?
- How are buy-to-let mortgages assessed?
- Does my income affect me getting a buy-to-let mortgage?
- How much deposit will I need for my buy-to-let mortgage?
- What are the costs involved in purchasing a buy-to-let?
- Can I get a buy-to-let mortgage with bad credit?
- Can I get a buy-to-let mortgage through a limited company?
- What are buy-to-let rental returns?
- What is a buy-to-let stress test?
- What’s the best mortgage for my buy-to-let?
- Should I have an interest only or repayment buy-to-let mortgage?
- How do I make a buy-to-let mortgage application?
- Why are buy-to-let mortgages more expensive?
- Can I rent my property out without a buy-to-let mortgage?
- British ex-pat buy-to-let mortgage.
- Can I get a buy-to-let mortgage with Help to Buy?
- Purchase a buy-to-let property at auction?
How do I get a buy-to-let mortgage?
In essence, are several factors which will affect any buy-to-let mortgage application. Firstly, check with your mortgage broker if the property is a non-standard construction.
- Age limits – The minimum age is usually 18, however, this does vary from lender to lender.
- Income – Because some lenders have a minimum income level.
- Rental income – Must pass the lenders rental cover (stress test).
- Deposit – Minimum 15% deposit, ideally 25% will give you the best options.
- Credit profile – The cleaner your profile, the better the rates and options available.
How are buy-to-let mortgages assessed?
Lenders assess borrowing on the properties current/anticipated rental income. How much rental income can be generated from the property –as a result, this will affect how much the lender will potentially lend.
Secondly, some lenders will allow “Top Slicing” This is when the rental received isn’t enough to get the desired loan amount.
As a result of this, they look at personal affordability to assess if you have enough disposal income to cover any shortfalls that should arise from scenarios such as the property not being let out.
Most lender will lend more on a 5-year fixed rate than they will on a 2-year fixed rate due to how the stress tests are conducted.
Does my income affect me getting a buy-to-let mortgage?
Some lenders have a minimum income for buy-to-let mortgages, this typical ranges from 20-25K, and this is more common if the applicant is a first-time landlord.
Experienced landlords (usually classed as someone who has 6-12 months landlord experience) can obtain mortgages with no income. However, this will ultimately depend on the rental income of the property and the applicants credit profile.
How much deposit will I need for my buy-to-let mortgage?
So, the minimum deposit you will need is 20%. There are a small number of lenders working in this area and the rates are higher to reflect the extra risk involved. In addition, with 25% the whole of the market becomes open to you.
Each lender has a minimum property value, and this can vary greatly. This is where your buy-to-let mortgage expert will be able to save you time and money and give you all the information needed.
What are the purchasing costs?
Each case and lender are different. However, potential costs to consider for a buy-to-let mortgage are:
- Broker fees – Depending on the complexity of the case.
- Lender application fees – Some lenders charge a fee to submit the mortgage application.
- Lender arrangement fees – Some have no fees, while some work on a percentage of the loan amount.
- Valuation fees – To have the property valued.
- Management fees for the property – If you are letting out the property through an agent.
- Stamp duty – Extra stamp duty is now payable on 2nd properties, check the government website for exact details https://www.gov.uk/stamp-duty-land-tax.
Can I get a buy-to-let mortgage with bad credit?
There are a few lenders in the market who will potentially lend to people with previous bad credit. This is an area where your buy-to-let mortgage expert will be able to place you with the best lender for your circumstance.
As such, they will go through your credit report and be able to see exactly what the issues have been and place you accordingly.
The interest rates for bad credit mortgages will be higher, interest rates are always reflective of risk.
With being a higher rate, this can sometimes mean the rent doesn’t meet the lenders stress test. This can normally be resolved if taking a 5-year fixed product.
Some lenders will allow top slicing which takes into account your earned income. To read all about bad credit mortgages click here.
Can I get a buy-to-let mortgage through a limited company?
Yes. This can either be through an existing limited company or setting up with the sole purpose of buying and renting properties.
Because this is a specialised area of lending and your advisor will be able to run through all the options available on your enquiry, including the SIC codes needed to set the company up correctly. To read all about SPV mortgages click here.
So, before proceeding with any mortgage application it is vital to arrange a meeting with a tax specialist to discuss your situation, as such, they will then advise on the most tax-efficient way for you.
The buy-to-let mortgage market is complicated, and you need the guidance of a but to let mortgage expert to make sure you are getting the best advice for your circumstances.
Call us on 0300 124 5655 to speak to an expert.
What are buy-to-let rental returns?
This is the return on the rent vs the mortgage. If rent received was the same as the interest rate payment that would be 100%.
If the rent received was £600 and mortgage payment was £300 this would be 200% rental return.
Lenders will want the rental return to me a minimum of 125% and as high as 145%. However. this will depend on the mortgage deal you have with them.
What is a stress test?
This is the way lenders assess how viable the buy-to-let property is. Therefore, the stress test is a way to check the property rental will be able to cover the interest.
For example, you have a £100,000 mortgage and your interest rate is 3.5%, your monthly interest only repayment will be £291.66 per month.
Some lenders use a stress test of 125% or 145% depending on the lender.
£291.66 x 125% = £364.58 – Minimum rental amount
£291.66 x 145% = £422.90 – Minimum rental amount
While the above example uses the actual interest rate of the product for the rental calculation because some lenders will use a standard variable or predetermined interest rate to stress test (typically between 5.0%-5.5%) which will further affect borrowing.
What’s the best mortgage for my buy-to-let?
There is no best mortgage for a buy-to-let . The mortgage you need will be down to your individual circumstances, preferences, and long-term goals.
Because there are a wide variety of options available and your buy-to-let mortgage expert will be able to advise accordingly once they know your full circumstances.
Should I have an interest-only or repayment buy-to-let mortgage?
Most buy-to-let landlords will opt for an interest only mortgage. The reason is, you will receive more of the rental income for yourself because the interest only mortgage will be cheaper.
Secondly, the danger with any interest only mortgage is that you will still be liable for the full balance plus any fees added to the loan when the mortgage term ends.
If you opt for a repayment mortgage, you will be paying back the interest along with making capital repayments.
As a result, your monthly mortgage payment will be higher but, you will own the property once the mortgage term ends.
There is no right or wrong way, whichever way you choose will be down to your own preferences. Some buy-to-let landlords will choose interest only mortgages and make over-payments (reducing the mortgage balance) when the property is rented.
If the property is then not rented out, they are only paying the interest element. This is a midway between the two options.
If a buy-to-let landlord owns multiple buy-to-let properties, they will have some properties on interest only and some on repayment.
These are known as portfolio landlords and extra care needs to be taken when placing portfolio landlords.
Some lenders have a limit on the number of properties that one landlord can have mortgages on.
This is a very specialised area of lending. Call us on 0300 124 5655 to speak to an expert.
How do I make a buy-to-let mortgage application?
When looking to apply for a buy-to-let mortgage, it is important to understand what the lender will be looking at to assess if you can afford the mortgage:
- Expected rental income.
- Personal income.
- Type of buy to let property.
- Any additional costs related with letting the property.
- Rental income will be to be a minimum 125% of the mortgage repayment. Importantly, this will be verified by a surveyor who will value the property and looks at the rental figures in the area.
If this isn’t the case and the lender will allow “top slicing” then they will look into your personal disposable income.
Credit history will also play a part. They will look at current debt levels, payment history and if there is any bad credit on your credit file.
The amount of deposit you have will influence the interest rate offered by the lender.
The lower the interest rate, the lower the monthly mortgage payment. The higher the deposit the less perceived risk you will be to the buy to let mortgage lender.
Can I rent my property out without a buy-to-let mortgage?
You can rent your property out if you have the permission from your current lender, this is known as consent to let.
This can happen if you meet a new partner and move in together and are currently in a fixed-rate mortgage deal.
The mortgage lender may charge you a fee and may alter the interest rate. However, if in doubt always speak to your lender directly.
British ex-pat buy-to-let mortgages.
If you’re an expat currently living abroad there are buy-to-let mortgages which could be available to you. Ultimately, there are more obstacles, and you will need the assistance of a mortgage expert.
If you already own a property in the UK, then potentially there will be more options available. Because this is such a niche area of lending with very few lenders looking for this type of business.
The buy-to-let mortgage experts we work with will be able to give you the most up to date information.
Can I get a buy-to-let mortgage with Help to Buy?
No. The government Help to Buy scheme was designed to get people on the property ladder and can’t be used for buy-to-let purposes.
If you have the property and your situation changes before you do anything, we advise you to contact your local Help to Buy provider and discuss your situation directly with them.
Purchase a buy-to-let property at auction?
Because buying a property at auction can very often be cheaper, this often seems like a good idea. However, you should still perform all your due diligence before agreeing to any purchase at auction.
As a rule, you will need to put a minimum of 10% of the property value on the day and have between 14-28 days to complete the purchase.
If the property isn’t habitable then you will need to look at bridging finance options – more details of which can be found here.
Speak to a buy-to-let mortgage expert.
The buy-to-let mortgage market is complex and requires a broker who knows the market and how to get you the most out of each mortgage deal.
As such, all the buy-to-let mortgage we work with are whole of market brokers. This ensures they have the experience to ensure you receive the best customer service and the best mortgage deal possible.
To discuss your options call us on 0300 124 5655 or complete our quick enquiry form online.