Buy-to-let is a specialist area of mortgages. Find out how we can help.
Whether you’re a first time or experienced landlord, looking to remortgage your existing buy-to-let, raising capital of your existing investment property, turning your existing property into a buy-to let property or even more complicated deals, with our in-depth knowledge and experience of dealing with lenders we can recommend the most suitable buy to let mortgage for you.
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage sold specifically to people who buy property as an investment, rather than as a place to live.
If you plan to rent out a new property, most lenders will prefer you not to finance your purchase with a standard residential mortgage.
Who are buy-to-let mortgages for?
Buy-to-let mortgages are powerful tools both for seasoned investors and for new landlords looking to take their first steps into the rental property market.
Not everyone is entitled to take one out though: BTL mortgages are more expensive than typical mortgages, and require deposits of between 25% and 40%.
How does a buy-to-let mortgage work?
Most borrowers take out an interest-only mortgage for their chosen investment property. They then only pay the interest on the loan as it accrues every month, generally from the proceeds of the rent they collect.
The capital debt – the full amount of the mortgage – is paid at the end of an agreed term.
What are the criteria for a buy-to-let mortgage?
Finding a buy-to-let mortgage with Mortgage321 couldn’t be easier, all you need to do is contact us, but here’s what you need to bear in mind:
Are buy-to-let mortgages interest-only?
Most BTL borrowers prefer to take out interest-only mortgages, because they mean lower outgoings. Repayment mortgages are also available, and are becoming a popular alternative.
Are buy-to-let mortgages more expensive?
Landlords seek out cheaper properties, but BTL mortgages cost more – both in higher interest rates and larger deposits – as borrowers are more of a risk to lenders than owner-occupiers.
How much can you borrow on a buy to let?
How much you can borrow will depend on your deposit, personal circumstances and rental income. Lenders normally require you to earn more in rent every month than you repay on your mortgage.
What are the tax implications of buy-to-let?
The once-generous tax allowances for BTL mortgages have changed, but borrowers are still entitled to a 20% credit on their interest payments. Some choose to set up limited companies, so specialist advice is encouraged.
What is the difference between a buy to let mortgage and a residential mortgage?
Unlike most residential mortgages, buy-to-let mortgages are commonly offered on an interest-only basis. This means that your monthly payments will only cover the interest on your mortgage. Your capital debt – the money you’ve borrowed – will not go down unless you choose to make extra payments or take out a repayment mortgage. You will need to pay the capital debt off in full at the end of your term. You could do this by selling the property, or you could keep the property and take out another mortgage.
A buy-to-let mortgage normally requires a larger deposit than a residential mortgage. You may face larger upfront fees and pay a higher rate of interest. You will have to pay more stamp duty for a second property that is not your main home. Some buy-to-let investors choose to set themselves up as limited companies for taxation purposes.
What deposit do I need for a buy to let mortgage?
Most lenders will require you to put down a larger deposit for a buy-to-let mortgage. This is usually around 25% of the property’s value, but your mortgage may require a deposit as large as low as 20% or as high as 40%.
You need a larger deposit for a buy-to-let mortgage because it protects the lender in the event that you default on your payments, which usually happens as a result of problems with collecting rent.
How much can I borrow on a buy-to-let mortgage?
Depending upon your individual tax margin, lower rate or higher rate, mortgage lenders usually require your rental income to be at least 125% to 145% of your monthly mortgage payments or mortgage interest. As part of this calculation lenders will use a managed rate and not your actual mortgage product rate, to calculate your monthly buy-to-let mortgage payment, if your mortgage product's initial benefit period is less than 5 years – in a lot of cases, this is 5.5%. If your product initial benefit period is 5 years or greater then some lenders use the product pay rate - which can achieve a higher level of borrowing.
You will also need to meet the lender’s minimum salary requirements.
What fees will I need to pay on a buy to let property?
If you are planning on buying a property to let out, there will be other fees that you may need to factor into your budgeting when deciding whether or not you can afford a mortgage.
These include the following:
Stamp duty, surveyors’ fees and other charges when buying
Tax on rental income
Building and landlords’ insurance
Rent insurance (optional)
Letting agents’ fees, if you choose to use them
Maintenance and repairs for the property, or possibly ground rent
It’s worth investigating landlord regulations and landlord responsibilities to find out more about the costs involved in buying a property to let.
What happens at the end of my interest only buy to let mortgage?
As you only pay interest on a buy-to-let deal, you’ll need to repay the full value of your mortgage at the end of your term. You may be able to extend your mortgage, or you might decide to sell the property.
If you choose to sell, you’ll be able to make a further profit if house prices have risen since you took out your mortgage. However, if house prices fall you’ll still need to pay off the rest of the mortgage yourself.
More buy to let mortgage questions?
If you're looking for advice on a buy to let mortgage, Mortgage321 will have the answers. Contact us today!