Buy to Let
Buy to Let Mortgages – What are They?
For the most part, buy-to-let mortgages are very similar to conventional mortgages. There are, however, also several key differences that must be taken into account, including but not limited to the following:
- Buy-to-let mortgage rates are often slightly higher
- Overall borrowing costs can also be elevated
- Most lenders request a minimum 25% down payment
- Buy-to-let mortgages are often interest-only mortgages
- Additional secured loan options may be available
The key to accessing the best buy-to-let mortgage lies in obtaining independent expert advice at the earliest possible stage. Whether this is your first buy-to-let mortgage or you are looking to expand your existing portfolio, speak to an established broker to gain important insights into the available options.
A “Buy to Let” is when a residential property is purchased with a view to renting it out as a form of investment. Buy to Let mortgages are specifically designed for purchasing this type of investment property.
Instead of the loan amount being based on income and outgoings, a Buy to Let mortgage is based on how much rent the property can generate, it’s therefore deemed to be generating its own income to repay the mortgage.
It is, however, expected that a borrower will provide details of both income and the potential rent of the Buy to Let property, personal income of GBP £25,000 is usually required, (however certain lenders accept GBP £20,000 and some do not ask for confirmation of income).
Buy to Let Mortgages – Property Types
- Unusual & non-standard construction
- Semi-commercial properties
- Ex-local authority including deck & balcony access
- Student lets
- Air BnB
- Holiday lets
- Multi-unit blocks
- No maximum acreage
- Freehold & leasehold
- Studio flats
- Light refurbishment
- Multi-let on one title
- Let to buy
- Adjoining applicant’s property
- Mortgages within 6 months of owning the property
Buy to Let Mortgages – Mortgage Types
- Purchase or remortgage
- Capital raising for business purposes & debt consolidation
- ERC free products
- Interest only or repayment
- Income assisted
- No minimum income requirement
- Contract reassignments
- Exit from a bridge
- Day 1 remortgages
- Individual or limited company
- No limit on the number of properties owned
- Gifted deposit
- 1st time landlord
- Impaired credit
- No maximum age
What are the Requirements?
A minimum 15% deposit is currently required, although a larger deposit will secure a better interest rate. An 85% Loan to Value (the size of the loan compared with the value of the property) mortgage is required. For eg :
Property valuation – GBP £100,000
Minimum deposit – GBP £15,000
Mortgage required – GBP £85,000
You will see above the loan amount is 85% of the property valuation, so the mortgage is classed as being at 85% Loan to Value or LTV.
Lenders will require that the rent generated by the property be at least 25% more than your monthly mortgage repayments. For eg if your mortgage repayments are £800 per month then you need to charge at least £1000 rent per month. The potential rental amount is the primary driver in determining the amount of money that can be borrowed.
NB. In the above scenario when the lender is calculating 25% of the monthly mortgage repayments they are currently applying a higher interest rate than the actual rate the borrower has secured. This is due to mortgage rates being historically low, lenders are taking this approach to protect themselves and the borrower against a possible increase in interest rates. Lenders are commonly using a rate of 5%. The result being the rental income will cover any potential increase in rates.
How Much Can I Borrow with a Buy-to-Let Mortgage?
The amount you can borrow with a buy-to-let mortgage will be determined by myriad factors, including the following among others:
- The value of the property you are buying
- Projected monthly rental income
- Your current financial status
- Evidence of employment and income
- The size of the down payment you offer
- Your recent credit history
It is typical for a buy-to-let lender to expect a minimum monthly rent income of 25% to 30% higher than the mortgage payment on the property you intend to purchase. This is to ensure a certain amount of breathing room, enabling you to comfortably meet your repayment obligations long-term.
Accessing a formal estimation of projected rental income is as simple as talking to a reliable and reputable lettings agent, who can assess the property, the local market and come up with a figure. However, your lender may insist on conducting their own valuation of both the property and its rental yield potential, before accepting your application.
Where Can I Get a Buy-to-Let Mortgage?
Most major banks and lenders on the UK High Street offer buy-to-let mortgage products for most types of properties. Mainstream lenders; however, tend to be somewhat selective when it comes to eligible borrowers, along with the current condition of the properties they lend on.
For example, along with having a flawless credit history and extensive proof of income, you may also need to show evidence that the property you wish to purchase is habitable and in a good state of repair. If you are thinking of purchasing a ‘fixer-upper’ that needs extensive repairs or renovations, most major lenders will not issue a buy-to-let mortgage against it.
Irrespective of your requirements, it is advisable to consult with an independent broker before applying. This will help you establish the best funding option for your buy-to-let property investment, while at the same time ensuring you get the best possible deal to suit your requirements and your budget.
Long Term Investment Advantage
Since mass introduction during the mid 90’s many investors have entered the Buy to Let market not just for the rental income but also to benefit from long term increases in property prices and importantly as a purchase which could eventually be sold and used for a future pension. Numerous investors have become multi-property owners.
A well used strategy for investors to increase their property portfolio is to remortgage once the Buy to Let property has increased in value. Cash is then released (see our page on Equity Release for more information) which could be used as a deposit for further Buy to Let purchases i.e.
Property valuation – GBP 100,000
Current mortgage – GBP 50,000
New mortgage/remortgage – GBP 75,000 (GBP 50,000 would be used to repay the old mortgage and GBP 25,000 is raised to use as a deposit or deposits for future purchases)
At UK Property Finance we have been involved with Buy to Let mortgage lenders from the very beginning and have a huge amount of experience and contacts in this field.
*It is considered fraudulent to obtain a standard mortgage for a property you purchase with the intent of renting out.