Buy to Let Mortgages

Taking out a buy to let mortgage will be an investment, meaning you will have to plan carefully ahead if this is a path that you are considering heading down. The primary aspect to look at, is the rules and regulations of being a buy to let landlord. You need to make sure you are aware of how being a buy to let landlord is going to work.

As trusted and experienced buy to let mortgage experts, our mortgage advisors are always up to date with the latest buy to let mortgage legislation and regulations. They will happily discuss this with you during your free mortgage appointment.

You also need to be confident in your ability to afford this new investment. You likely already have a mortgage to your name (unless your situation is a first time buyer buy to let), meaning you need to know you can afford both your residential mortgage and your buy to let mortgage.

With any mortgage, there are going to be costs involved, and taking out a buy to let mortgage is no different. Of course your deposit and monthly mortgage payments are the obvious costs, but there may be more cost involved here than there would be for a standard residential mortgage.

You’ll have to factor in things like Stamp Duty Tax, surveyors costs and other purchase charges, as well as being taxed on your rental income. You would also likely have to look at various insurances, such as building and landlord insurance, possibly rent insurance and more.

Additionally, you are looking for a tenant to live within your property too, which means advertising your property to potential renters. As such, letting agency fees or general advertising costs depending on the route you take, will have to be factored in.

Once a tenant has been found, you’ll of course be responsible for property maintenance and any repairs that need to be made. Whilst these are all included, a buy to let investment property can still prove to be worthwhile and profitable, making up for these outgoings.

In order to learn more about things like Stamp Duty Tax and rental income tax, we would recommend speaking with a qualified tax advisor.

Typically speaking, the minimum deposit requirement for an applicant taking out a buy to let mortgage is 25% of the property value. That being said, whilst 25% is the standard, the amount you need to put down can actually vary between 20-40% depending on your history as a landlord, as well as the mortgage lender you are with.

We often find that a popular option amongst experienced landlords who are taking out a buy to let mortgage on a new property, is to remortgage a property from your existing portfolio, in order to release equity from it and fund the deposit for your new purchase.

The amount that a landlord will be able to borrow for a buy to let mortgage will be determined by the projected rental income that the property is likely to generate, once tenants have been found and a tenancy agreement begins.

In addition to this, the majority of mortgage lenders will also want to see that you to have an income yourself from a main job or self employment. The reason for this, is that you are going to need to be able to cover the mortgage payments, in the event of any down periods where you don’t have tenants.

In terms of qualifying for a buy to let mortgage, this will come down to a selection of factors. First up you have income and affordability, which will apply to not only residential mortgages, but also may also apply to buy to let mortgages as well (though not all). There are a lot of lenders who will want to see you earning at least £25,000 per year.

You also have deposit, as mortgage lenders will want to see you have saved at least 20-40% of the property purchase price. Additionally, you have factors like whether or not you are based in the UK, borrower status, credit history and the age of the borrower.

The latter comes into play, as if you are taking out a buy to let mortgage at say, for example aged 50, hoping for a 25 year term, you would be 75 years old by the time that mortgage has been paid off. When it comes to buy to let mortgages, a mortgage lender will generally have a cap of 70-75 years old as the maximum age they are willing to lend until, although this could be higher, depending on the lender.

There are a variety of mortgage lenders who will not take a focus on your personal income when you are applying for one of their buy to let mortgage deals. On the other hand, you may find that there are mortgage lenders who are stricter, and will need to see that you are earning £25,000 per annum, or possibly even more.

A mortgage lender will also want to see your projected rental income from the property you are going to be letting out. When an affordability assessment is carried out, there will be what is called a “stress-test”, where the buy to let mortgage lender will look to see if your rental income can cover the monthly mortgage payments. This is typically calculated on a percentage of your properties value.

The answer to this is not as simple as giving one specific number. The amount of buy to let mortgages you can have will be entirely dependent on the mortgage provider you are with, as well as how much they are willing to let you borrow.

You’ll find that some mortgage providers will only let you take out one or two buy to let mortgages in your name, whereas others may let you take out more, providing you can afford the deposits and have a high enough projected rental income, to cover the costs.

In order to be classed as a “portfolio” of properties, you will have to own at least four buy to let properties.

If you have a suitable amount of equity sitting within your house, you may be able to remortgage to release this equity, using the capital you have released from that process in order to fund the deposit of a property purchase, that you intend to let out under a buy to let mortgage.

It is important to remember if you are looking to purchase a property in order to generate additional income through letting it out, that a buy to let mortgage deposit is typically somewhere within the region of 20-40%.

If you are on a residential mortgage at the moment and are looking to change it to a buy to let mortgage, you will need to remortgage. This is called a Let to Buy, a common occurrence for “accidental landlords, homeowners who perhaps didn’t want to or think of becoming a landlord initially, changing their mind at a later date.

Of course you will also need to consider the pros and cons of this, as the alternative would be to sell your home and purchase a new property from the offset under a buy to let mortgage. This can be costly and more stressful, however, as you will still need to find your new home to live in as well. A Let to Buy could mean you benefit from a much less stressful process.

Generally speaking, interest-only buy to let mortgages are the most popular options for landlords, though a repayment mortgage may be suitable still, depending on what it is you are looking to achieve. If you would prefer to have more free funds each month, interest-only may be more appropriate for you as you don’t pay the capital off until the end of the mortgage.

That in itself, is a potential downside, as you need to have a plan in place to make sure you pay that full capital balance back when it is owed. This is perhaps where a repayment mortgage may be more suitable for you, as you will be paying back interest and capital at the same time, making your payments cheaper overall.

Conversely, the repayment mortgage, unlike it’s interest-only counterpart, will not leave much free funds for you to play with, as you will be paying a higher balance per month.

If when you took out your buy to let mortgage, you did so as an interest-only mortgage, you’ll have only been paying the interest throughout the duration of your mortgage term. Once that mortgage term is due to end, you will owe the remaining capital balance in full, as a lump sum to the mortgage lender.

It is important to prepare ahead of time for this and luckily there are a few different repayment strategies for your interest-only buy to let mortgage. The most popular of these is to remortgage the property, taking out either another interest-only mortgage, or switching to a repayment mortgage.

There may be other choices too, such as other investments, selling the property, using your pension and more. Whichever you choose, it is crucial to make sure this is arranged ahead of your buy to let mortgage.

Yes, as a first time buyer it will be entirely possible for you to get a buy to let mortgage, though this will depend on the mortgage lender. Your situation would be a risky one, as you have no home owning experience, which is something that a mortgage lender will ideally want to see in an applicant.

Generally speaking, a mortgage lender will only offer buy to let mortgage deals to existing homeowners. Whilst not impossible, you would likely have an easier time applying for a buy to let mortgage if you already owned your own home, as it provides a track record of being able to keep up your monthly mortgage repayments.

Yes, a self-employed mortgage applicant will generally be able to obtain a buy to let mortgage. In most cases it will be the exact same mortgage lending criteria, with the only difference, as is the same with a residential mortgage, being how you evidence your income.

The bonus for this type of buy to let mortgage applicant though, is personal income is typically much less important than it would be for a self-employed applicant taking out a residential mortgage. In any case, whether employed or self-employed, the products will be the same.

As with any mortgage, you will need to provide your mortgage lender with documents for your buy to let mortgage. Though typically requiring less paperwork than a residential mortgage, you may be asked for things like proof of income (last 3 months bank statements or SA302 tax returns if you are self-employed), proof of deposit, proof of ID and address, most recent or current P60 and proof of rental income.

Your dedicated buy to let mortgage advisor will run through what they require from you during your process, as not everything listed here may be required for you. Even still, it might be beneficial to get them gathered just in case, prior to your buy to let mortgage.

Having an expert buy to let mortgage broker by your side will give you the chance to be informed of the buy to let mortgage options that are available to you based on your financial and personal circumstances.

Being a buy to let mortgage broker, we are able to use our extensive experience in working alongside many buy to let landlords, both new and existing to guide you through the process and help clear any obstacles you face throughout your mortgage journey.