What is a Buy-to-Let Mortgage?

Buy-to-Let mortgage is for renting out a property. It’s not the same as a regular home loan.

The costs and rules are different from a standard residential mortgage. Mortgage lenders look at your personal situation and potential rental income.

This Buy-to-Let guide aims to show you how to get a Buy-to-Let mortgage.

Do you qualify?

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Author: Carl Shave - CEO and co-founder
Last updated: 30 May 2024

Buy-to-Let Mortgage Adviser

With the right Buy-to-Let mortgage broker, it has never been easier to access a Buy-to-Let mortgage. Whether you’re a Portfolio Landlord, a first-time Landlord, or someone who wants to own a Home in Multiple Occupation (HMO), lenders will 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 guide you through the process and tailor their Buy-to-Let mortgage advice to your circumstances. Get in touch with us to see how we can help.

An introduction to Buy-to-Let Mortgages

Buy-to-Let topics

Whether you're investing in your first Buy-to-Let Mortgage or an experienced landlord, we can help.

Useful Information

What's the right, fixed, or tracker Buy-to-Let rate?

This really depends on how risk-averse a landlord is. A fixed-rate allows you to know exactly what you will pay monthly. Fixed rates often carry 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.

How much deposit do I need for a Buy-to-Let property?

While it is recommended that you save a minimum 15% deposit the answer to this question is more detailed. Some lenders will consider you 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 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, lenders using the criteria of a minimum of 25% would require a deposit of £62,500. This would leave a required mortgage of £187,500. If the rentable value of the property meant the lender would only provide a mortgage of up to £162,500, a 35% deposit would be required.

Some lenders now consider overall affordability where other income such as salary can be factored into the calculation. They can be used to cover any shortfall the rent may give regarding the loan amount. This is commonly referred to as ‘top slicing’.

How do I qualify for a Buy-to-Let mortgage?

It may be more difficult to get a Buy-to-Let mortgage as a first-time buyer but it is possible. 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 Buy-to-Let products may suit some people better than others. Good advice from a suitably qualified accountant or tax specialist will help with this decision.

Building Societies and Banks have defined eligibility requirements, although they may vary greatly from lender to lender.

How do I compare Buy-to-Let mortgages?

Potential borrowers and landlords face a huge amount of choice when trying to decide which will be the most suitable mortgage. So, how can they best compare mortgages and recognise which one will be the right option?

As Buy-to-Let mortgages gain popularity there are many comparison websites out there. These will give you a good picture of the current state of the market.

These tables only provide part of the story. The best mortgage for one person may not meet the goals and priorities of another. While most focus on cost-effectiveness over a specific period, 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 can supply. These will all have a bearing on the possible mortgage deal. You might be able to access a rate that is not listed to the public, especially deals offered by specialist lenders. A lot of specialist lenders don’t advertise their rates in the same way as high street banks.

People who are new to Buy-to-Let mortgages might not know what to look for. So, discussing your needs with a mortgage broker is always a great idea. They have access to a huge range of mortgage products and can offer the best Buy-to-Let advice.

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Can I get a Buy-to-Let Mortgage if I don't own a residential property?

There are a number of people who do not own their residing property but have obtained a Buy-to-Let mortgage.

There are certain 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.

How can I maximise my Buy-to-Let rental profits?

This is an age-old question and there are various options that you can think about.

  1. 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.
  2. Look for properties that have good rental yields. Purchasing a property for £250,000 may seem like a good idea as you may be able to rent it for £850 per month. However, purchasing two properties for £125,000 each that rent for £550 per month will provide more profit in the long run. Your investment will also be split over two properties, splitting the risk of having periods where you may not have a tenant in a property.
  3. 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. The cheapest rate isn’t always the best rate when you consider the lender’s arrangement fees and other associated costs.
  4. Choosing an Interest Only Mortgage over a Repayment Mortgage is another way to boost your rental profits. While a Repayment Mortgage will reduce your mortgage balance, it does eat into the profit you make. An Interest Only Mortgage means you will only pay the interest element of your mortgage. Therefore, leaving you with more profit each month.

There are pros and cons to both types of mortgages hence why it is important to get the correct professional advice.

Are Buy-to-Let mortgages more expensive?

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, you can expect a Buy-to-Let Mortgage to be more expensive like for like.

Buy-to-Let mortgage rates are set by lenders considering 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.

Many borrowers arrange their Buy-to-Let mortgages on an Interest Only basis. Reasons for this include tax efficiency and budget purposes, ensuring that there is a regular net income surplus each month. 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.

What are the costs for a Buy-to-Let property?

Before buying an investment property, consider the ownership costs.

Rental income is taxable, and tax calculation methods have changed. Many now opt for Buy-to-Let mortgages through limited companies to manage this.

If you sell the property at a profit, you might owe taxes.

If you hire an agent, expect to pay them a percentage (usually 10-15%) of your profits, plus administration fees. Alternatively, you can manage the property yourself.

Buy-to-Let mortgages for limited companies will incur costs for:

  1. corporation tax on profits,
  2. initial company registration costs,
  3. and ongoing accountant fees.

These include:

  1. solicitor fees,
  2. mortgage arrangement fees,
  3. property survey,
  4. stamp duty (including a higher second property surcharge),
  5. mortgage broker fees if applicable,
  6. and expenses for energy efficiency compliance (MEES), both initially and ongoing.

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Buy-to-Let Mortgage FAQs

The monthly payment is crucial for calculating the property’s profit. It’s vital to have the right mortgage for your needs. Many Buy-to-Let mortgages have an end date when the loan switches to a higher lender rate. Borrowers often explore new lenders or consider switching.

We also check if your current lender can offer a better deal. We recommend what suits your needs, but there’s no guarantee of continuous rental income covering the mortgage. Staying with your current lender may have benefits, like no extra checks or paperwork, and possibly no need for property valuation or lawyers.

The term porting is simply another way to say transfer. It is widely recognised with residential mortgages, however not so much in connection with Buy-to-Let mortgages. In principle, the meaning of the term remains the same regardless of the type of mortgage.

A portable mortgage enables you to transfer the T&Cs of the outstanding loan to another property, should you look to sell the current property it’s secured upon.

For those Buy-to-Let investors who find themselves with a history of bad credit, this could seem impossible. The good news is that there are lenders in the market that will look to assist these potential investors.

Getting a Buy-to-Let mortgage can be challenging for foreign nationals. If you have permanent UK residency, it’s usually easier.

For visa holders like tier 2, it’s possible to get one, depending on how long you’ve been in the UK and your job status.

If you’re a foreign national no longer in the UK, it’s even tougher. Some specialised lenders might consider it but expect stricter background checks due to higher risks for the lender.

Expats may either wish to:

  • maintain their current property to rent or;
  • look to purchase a property for their own intended use for when they return.

Regardless of the reason for ownership, expats may need a Buy-to-Let mortgage. The good news is that there are lenders in the market that are able to cater for these applicants.

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 new build property, such as the lack of ongoing maintenance in the early years. There may also be some added incentives such as vendor purchase price/fees contributions including flooring and possibly white goods.

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.

Anyone purchasing an additional 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, try our Stamp Duty Calculator.

There is actually no limit to the number of Buy-to-Let properties that you can own.

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