What is a Buy-to-Let Mortgage?
A Buy-to-Let Mortgage is a mortgage secured on a property that has been or is being purchased for the sole reason of being let out to tenants. In the past, owning a Buy-to-Let property was seemingly reserved for professional landlords, but now landlords come from all walks of life and varying professions.
Set up costs and product rates are different to a standard Residential Mortgage, as is the criteria on which a lender assesses an application. It’s typically based on personal circumstances and what a lender will deem as the open market rent that may be achieved from letting the property.
Just Mortgage Brokers has access to over 12,000 mortgages from over 90 lenders, often offering exclusive deals otherwise unavailable on the high street. You may find our blog post The Advantages and Disadvantages of a Buy-to-Let Mortgage useful, or you can get in touch with one of our specialist advisers to see how they can help.
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Buy To Let Mortgages
With the right Mortgage Broker or Adviser, it has never been easier to access a Buy-to-Let Mortgage. Whether you are a First Time Landlord, Portfolio Landlord, or someone that wants to own a Home in Multiple Occupation (HMO), lenders will most certainly have options available. However, it can still be tricky and getting the right mortgage advice is as important as finding the right property.
Our specialist Mortgage Brokers can go through the process and tailor their advice to your circumstances. So, whether you’re just starting out on your Buy-to-Let journey or you’re a seasoned investor, get in touch with us at Just Mortgage Brokers to see how we can help.
This really depends on how risk averse a landlord is. While a Fixed Rate allows you to know exactly what you pay monthly, it often carries a slightly higher rate than a Tracker Rate. You will however be protected from any rate rises made to the Bank of England base rate.
A Tracker Rate will often be cheaper than a Fixed Rate. However, consider that your monthly repayment will fluctuate according to the Bank of England base rate, whether this goes up or down.
While it is recommended that you save a minimum 15% deposit for a Buy-to-Let Mortgage, the answer to this question is more detailed.
Some lenders will consider a Buy-to-Let Mortgage with a 15% deposit, but they are likely to use strict lending criteria. That’s why a higher minimum of 25% is more appropriate in many circumstances.
When assessing how much you can borrow for a Buy-to-Let Mortgage, a critical element is the property’s rent value. This may override any minimum deposit requirement.
For example, for a property valued at £250,000 a lender using the criteria of a minimum 25% deposit would equate to £62,500, leaving a required mortgage of £187,500. However, if the rentable value of the property meant the lender would only provide a mortgage up to £162,500, a 35% deposit would be required to proceed.
Some lenders now consider overall affordability where other income such as salary can be factored into the Buy-to-Let calculation and can be used to cover any shortfall the rent may give regarding the loan amount. This is commonly referred to as ‘top slicing’.
Buy-to-Let Mortgages are designed for borrowers purchasing or remortgaging a residential investment property who already occupy their own home, with or without a mortgage.
It may be more difficult to get a Buy-to-Let Mortgage as a First Time Buyer but it is by no means impossible. A lender would normally expect you to be able to afford the loan on a residential basis.
Mortgages are available to Limited Companies that are specifically created for the purpose of owning and renting property. These Limited Company Buy-to-Let products may be suitable for some borrowers more than others and it is very important that you understand the main differences. Good advice from a suitably qualified accountant or tax specialist will help with this decision.
Building Societies and Banks have defined eligibility requirements for this type of mortgage although they may vary greatly from lender to lender.
The rise in popularity of Buy-to-Let mortgages, and the sheer number of products now available on the market – both from high street banks and specialist lenders – means potential borrowers and landlords now face a huge amount of choice when trying to decide which will be the most suitable Buy-to-Let mortgage for their requirements. How can they best compare mortgages and recognise which one will be the right option?
Fortunately, with Buy-to-Let mortgages now being a mainstream activity, there are many opportunities to compare rates and conditions via ‘best buy’ tables and websites that advertise widely. These will give you a good picture of the current state of the market.
However, these tables do not tell the whole picture. What looks like the most suitable mortgage for one borrower might fall short of the aims and priorities for the next. While most are weighted towards value for money, representing the lowest costs over a certain period (which will of course be important to most people), not all of them will reflect other priorities or factors – for example, the desired duration of the mortgage or the amount of deposit the borrower is able to supply. These will all have a bearing on the possible mortgage deal, and you might be able to access a rate that is not listed in a public online list, especially with regard to deals offered by specialist lenders who do not advertise their rates in the same way as high street banks.
Most people who are new to Buy-to-Let mortgages might not fully understand what to look for, or where to start, and the process can be time consuming. The most useful way to compare Buy-to-Let mortgages is to discuss your needs with an experienced mortgage broker, such as one of our team here. They have access to a huge range of Buy-to-Let mortgage products from a variety of lenders, and will be able to recommend the most suitable options to you after considering your targets and requirements for a mortgage.
Buy to Let Mortgages are normally available to people who already own a residential property or live in their own home, either with a mortgage or totally unencumbered.
However, there is an increasing number of people who either live with friends/family or rent themselves and have in fact bought property to rent out, in order to maintain a place on the property ladder. There are a number of lenders who are happy to do business with applicants who “own” property rather than “own/occupy”. You will need to provide full details of your current investment portfolio together with rental and income evidence.
It may be more difficult to get a Buy to Let Mortgage as a First Time Buyer, but it is by no means impossible. A lender would normally expect you to be able to afford the loan on a residential basis.
As well as borrowing money in your personal name, mortgages are available to Limited Companies that are specifically created for the purpose of owning and renting property. These “Limited Company” Buy to Let products may be suitable for some borrowers more than others depending on individual tax status and investment objectives. It is very important that you understand the main differences. Good advice from a suitably qualified accountant or tax specialist will help with this decision.
This is an age-old question and there are various options that you can think about.
- Turning your property into a HMO (Home in Multiple Occupation) can really make the rental yields shoot up. This option can work quite well, as effectively, you can rent on a per room basis. You will have to seek the correct permissions from the Local Authority and also be willing to service a number of individual tenants in one property.
- Look for properties that have good rental yields. Purchasing a property for say £250,000 may seem like a good idea as you may be able to rent it for say £850 per month. However, purchasing two properties for £125,000 each that rent for say £550 per month will provide you with more profit in the long run against the money you have invested. Your investment will also be split over two properties which will also split the risk of having void periods where you may not have a tenant in a property.
- Getting the right mortgage advice is just as important when looking to maximise your rental profits. An experienced Mortgage Broker can help you access the most suitable mortgage rates for your needs as well as compare the small print. The cheapest rate isn’t always the best rate when you take into account the lenders arrangement fees and other associated costs. Getting the right product can sometimes mean the saving of several thousands of pounds over the course of a mortgage.
- Choosing an Interest Only Mortgage over a Repayment Mortgage is another way to boost your rental profits. While a Repayment Mortgage will reduce your balance over the course of the mortgage it does eat into the profit you make on a month to month basis. An Interest Only Mortgage on the other hand means you will only pay the interest element of your mortgage payment every month to the lender. This is a lot less than the amount you will have to pay on a Repayment Mortgage which in turn will leave you with more profit on a month to month basis.
There are pros and cons to both types of mortgages hence why it is important to get the correct professional advice.
There are several types of costs related to mortgages such as;
- Arrangement/Completion Fees
- Set up and valuation fees
- Interest Rates.
Compared to a straightforward mortgage for an owner-occupied property, you can expect a Buy to Let Mortgage to be more expensive on a like for like, loan to value basis.
Interest Rates are set by lenders taking into account the commercial proposition and greater risk. While there is not a vast difference, the Buy to Let Rate will be higher. Lender completion fees vary greatly and could be up to 3% of the loan in some cases.
The majority of borrowers arrange their Buy to Let Mortgages on an Interest Only basis, for a combination reasons, including tax efficiency and for budget purposes to ensure that there is a regular net income surplus each month in order account for unexpected costs, such as repairs and possibly void periods when the property is vacant and costs are ongoing. On this basis, the loan Capital remains constant and does now reduce over time, thereby reducing the interest charge. The result of this is that over the term of the mortgage, more interest is payable in total. This may be suited to the tax position of many borrowers but the correct advice from a suitably qualified person should be taken to make sure that the mortgage set up matches your individual circumstances and objectives.
Investors purchase Buy to Let properties typically for the reason of income from the rental return and/or capital gain through the hopeful increase in the property value. For many Buy to Let Owners the returns justify the risks, however, before purchasing any property as an investment you must ensure that you have taken into consideration, the costs of the property ownership.
One of the ongoing costs is any income tax liability. Remember, you are receiving an income in the form of the rent, and as such, this is subject to tax. Much has changed of late and continues to do so in regard to how this tax is calculated, and in turn this has seen a surge in the popularity of limited company Buy to Lets. However, if in any doubt speak to a tax specialist or an accountant to ensure you are aware of how this affects you.
Another tax to consider is capital gains. You may have to pay tax on any profit or gain you make when you sell the property. As mentioned above, tax can be a complicated matter for many however, ignorance is not an excuse and therefore do ensure you are getting professional tax advice for your own individual circumstances.
As a landlord you will have a legal responsibility to your tenant(s). A duty to ensure the property remains legally habitable comes at a cost so therefore do ensure you make allowances within your budget to ensure you have adequate funds for any essential property maintenance. Remember this expense can come at a moment’s notice especially for circumstances such as a broken boiler that needs immediate attention. Different legislation and rules will also apply for Houses of Multiple Occupation (HMOs) that will likely come with their additional costs so again if in any doubt ensure you do your research first. How you decide to manage your property will also determine ongoing costs. If you decide to use an agent to deal with the day to day activities on your behalf then expect to pay a percentage of your rental income to them to cover this cost. This is typically between 10-15%. You may also have administration fees to pay in regard to arranging new tenants. If considering this route speak to your local letting agents and ask to see a copy of their landlord agreement. The other option is to manage to property yourself. Albeit this will look to keep your costs down to ensure you are willing and able to deal with your tenants demands and enquiries during their tenancy.
If looking to purchase your Buy to Let via a limited company do now remember that although this may have a benefit in regard to your personal tax liabilities, the limited company will still be subject to any corporation tax on profits. There will be an initial cost to register the company with Companies House and you will also require the ongoing services of an accountant to compile and file your company accounts.
There will also be cost for your initial purchase. These are likely to be, but not limited to:
- Solicitors fees
- Mortgage arrangement fee
- Property survey
- Stamp duty – this will likely be inclusive of the higher second property surcharge
- Mortgage broker fees where applicable
- Decorative costs/improvements – these may be a necessity to ensure you comply with the Minimum Energy Efficiency Standards (MEES) introduced in April 2018 and can also be an ongoing cost for you to ensure these standards are maintained.
One of the biggest ongoing costs for many is of course the mortgage. Having a mortgage is a necessity for many Buy to Let Investors and the cost of this must be factored into your budget. This will for many be factored in automatically when looking at the self-sufficiency of the property however do also ensure you consider the cost of this commitment during times of rental voids.
For many Buy to Let Investors a mortgage is a necessity and as such is a cost that needs to be factored into the budget. The amount of the monthly payment is therefore a critical part in determining the overall surplus income the property provides and ensuring you have the most appropriate mortgage product for your individual needs is therefore extremely important. For many Buy to Let Mortgages the product, whether this be a fixed or variable rate, will have an end date when at which time the loan will revert to the lenders standard variable rate. As the lenders standard rate is likely to be higher than the rate that is to finish, many Buy to Let Mortgage customers will look to secure another scheme most appropriate to their needs in readiness for when this is to happen.
The process many borrowers adopt when looking at a new rate is to look at other lenders and consider a remortgage, i.e. change from one lender to another. Whilst this is an option that must be considered, here at Just Mortgage Brokers we not only do this when looking at the new scheme but, we will also consider what your current lender may be able to offer you as an existing customer via a product transfer. We will then recommend what is best suited to your borrowing needs. The overall cost is the main factor but other possible benefits of us recommending you remain with your current provider may be:
- No additional underwriting
- No recalculations of loan amount permitted based on rentable income
- No property valuation required (unless it is to your advantage to do so and the lender offers this facility)
- No solicitors required
- Reduced paperwork for you
Can I Port My Buy to Let Mortgage?
The term porting is simply another way to say transfer. It is widely recognised when discussing Residential Mortgages, however, perhaps not so much when in connection with a Buy to Let Mortgage. In principle, the meaning of the term remains the same regardless of the type of mortgage. What a portable mortgage enables you to do is transfer the terms and conditions of the outstanding loan to another property being purchased should you look to sell the current property it is secured upon.
Can I Get a Buy to Let Mortgage with Bad Credit?
Owning a Buy to Let Property is an investment opportunity many people aspire to and indeed thousands of people successfully venture down this road. For those would be Buy to Let Investors who find themselves with a history of bad credit this however could just appear a pipe dream. The good news is that just as with a residential mortgage there are lenders in the market that will look to assist these potential investors. The typical bad credit events that can be still be considered are: Read more.
Can Foreign Nationals Get a Buy to Let Mortgage?
For a foreign national looking to obtain a Buy to Let Mortgage it can be a difficult exercise. If living in the UK and have permanent rights to reside then all should be absolutely fine and indeed on other forms of Visa such as tier 2 the prospect of obtaining a Buy to Let should be able to be realised. It may now depend on how long you have been in the UK and your employment status but there should still be options available to you.
If you are a foreign national however, now not residing in the UK, things tend to be that little bit more difficult. There are however, some, albeit limited in the availability, and very specialist in their underwriting, who will consider this. Do not expect the background checks to be much more involved and stricter due to the additional risks the lender has in making any decisions to proceed.
Can an Expat Get a Buy to Let Mortgage?
It is quite common place for a number of UK residents to move abroad and for a variety of reasons, whether this be through choice when retiring or as for many, work related. These expats may then either wish to maintain their current residential property to rent or possibly look to purchase a property for their own intended use for when they return. Regardless of the reason for their property ownership there is the possibility that an expat Buy to Let Mortgage will be required. The good news is that there are lenders in the market that are able to cater for these applicants. Read more.
Can I Get a Buy to Let Mortgage on a New Build Property?
Buying a new build property is treated exactly the same for Buy to Let as for new build owner occupied mortgages.
Minimum deposits are required and the proposed rent will need to be sufficient to satisfy the lender affordability calculation.
There may be some benefits to buying a newly built property, particularly the lack of ongoing maintenance in the early years which gives the opportunity for greater profit. There may also be some added incentives such as vendor purchase price/fees contributions including flooring and possibly white goods.
Do I Pay More Stamp Duty When Buying a Buy to Let Property?
When buying a Buy to Let property you will likely pay more Stamp Duty. In 2016 Government brought in changes to the rates of Stamp Duty.
As it stands, anyone purchasing an additional/second property will have an extra surcharge of 3% added to the current Stamp Duty Rates. To calculate how much Stamp Duty you may need to pay, check out our Stamp Duty Calculator.
How Many Buy to Let Properties Can I Have?
There is actually no limit to the number of Buy to Let properties that you can own and many people now have a number of properties in order to generate income on a professional basis.