In This Article
What is a buy to let mortgage?
Buy to let mortgages are designed for landlords who want to buy a property and rent it out. They typically work in the same way as residential mortgages, but with a few key differences.
For example, buy to let mortgages often have higher interest rates than residential mortgages because they’re considered a more risky investment by lenders.
You are also not allowed to live in the property at any time or allow your family to live in it.
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How do buy to let mortgages work?
Basically, it’s all about the value of the property and what rent it will generate. A buy to let mortgage is a loan for buying an investment property that you rent out. You can sometimes get one even if you don’t own your own home yet, but you will need to have enough money saved up to pay the deposit and other costs associated with buying a house before the loan is approved.
The maximum amount you can borrow depends on the lender but some can go as high as 80-85% loan to value. The most common minimum deposit is 25%.
If your looking for more information on mortgages in general, you may find our post on Mortgages.
How much can you borrow for buy to let mortgages?
The amount you can borrow for a mortgage is linked to the rental income you expect to receive and the value of the property. Lenders use a ‘stress test’ for the rental income which is based on a percentage calculation which your mortgage adviser will take into consideration when making a recommendation to you. Often you can get a bigger mortgage when using a mortgage broker.
How many buy to let mortgages can I have?
You can have as many buy to let mortgages as you like and still meet the criteria for some lenders. Different lenders may have their own rules about the maximum number of mortgages they can lend to an individual, but there are many portfolio mortgage lenders in the market that want to help you to grow your investment and are not concerned with how many properties / mortgages you have.
Buy to let rental yield
Rental yield is the annual income from a property expressed as a percentage of the total property value. Rental yield can be used as a benchmark figure when comparing buy to let properties. The amount of return increases as property prices increase and decreases when prices decrease.
How to get a buy to let mortgage?
Before applying for a buy to let mortgage, it’s best to talk to a mortgage broker. A good broker will be able to advise you on the best deals and explain the different options available to you.
Can I change my buy to let mortgage to residential?
The Financial Conduct Authority (FCA) stipulates that buy to let mortgages cannot be used for residential status by the owner of their immediate family, but must be converted to either a regulated buy to let or a standard residential mortgage should the owner/ family want to live there.
A mortgage adviser can help you change your buy to let mortgage to a residential one. Residential rates are generally lower, and fixed rates offer stability.
What are the main lender requirements of a buy to let mortgage?
The main lender requirements for a buy to let mortgage are:
Income/Affordability: Most lenders will want to see that your income is enough to pay the mortgage and other associated costs, so they will ask you to provide evidence of your income. Different lenders have different rules on this. If you have no income, you may still be able to get a buy to let mortgage.
Deposit: Buy to let mortgages usually require a larger deposit than residential mortgages do, so you will need to save up some money before purchasing your property – most commonly 25%.
Borrower Status: Some lenders only accept applicants who are over 21 years old and have been employed full time for at least two years. Additionally, some lenders only accept UK based borrowers.
A mortgage adviser will know this inside out and would be able to discuss lender requirements in full.
Does your salary matter for a buy to let mortgage?
Yes, your salary matters for a buy to let mortgage with most lenders but not all.
As a landlord, you’re going to need to be able to pay your mortgage and cover the costs of maintenance and repairs on your property. You also need to have money left over for all the other expenses that come with being a landlord. That’s why having enough income coming into your bank account is important.
If you’re looking for a buy to let mortgage, make sure you understand what lenders will look at when they assess whether they’ll lend you the money or not.
How much deposit do you need for a buy to let?
When you’re looking at buy to let properties, it’s important to figure out how much deposit you need.
The amount of money you’ll put down on a property is known as the “deposit,” and it’s typically around 25% of the value of the property as a minimum. The amount you need depends on a few factors—the price of the property, yield, the type of property, and your situation. A mortgage adviser can help you with this.
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Choosing the right buy to let property
Here’s some points to consider when looking for a Buy to let property:
It’s crucial to work out your budget carefully before investing, what property price you can afford a deposit on and the amount of rent you need to receive. Make sure you also factor in insurance, agency fees, the costs of buying etc and have a financial buffer so should your property be empty for a couple of months so you have some slack.
Rental yield & tenants
It’s important to do your research. There are some online resources that can give you an idea of what the market is doing. You can also look at what similar properties are renting at in the areas you’re looking in. Look at the quality and style too and notice which are snapped up first.
When buying a property, consider whether you want to rent it out to students, young professionals or families. If you are buying in a busy area, you may find that it is more affordable and your tenants will appreciate the convenience of living close to shops and public transport.
If you want to rent out a property, it’s important to consider the area. Properties near good transport links and amenities tend to get better rents and always be occupied. A local letting agent can tell you what areas are popular and might get the best rents. Look in the local papers for examples of properties and what rents they’re getting. There are also plenty of lettings websites for online research if you’re not in the area.
It’s a good idea to invest in new kitchen and bathroom fixtures when you rent out your property if it needs it, but don’t spend a small fortune on designer fixtures that will be hard to recoup the cost of. Stick with easy-to-maintain, clean, functional fixtures.
Maintenance is often expensive, so you might want to buy a property that’s easy to spruce up. Newer buildings tend to have lower maintenance costs, but they may be more expensive to purchase. A white-washed thatched cottage on a flood plain might seem cheap but it will certainly cost you over time.
When you rent a property, you need to be sure that it is safe and meets building standards. If the property is not up to code, you are responsible for any repairs. You should also make any repairs straight after buying rather than find half way through a rental contract that the problem has become so acute you need to do the building work immediately. Tenants don’t appreciate being inconvenienced and it is likely to lose you rent if not the tenants.
When you buy a property to let out, consider having an exit strategy in case you need to sell it.
You should make sure that your gas boiler is serviced to prevent carbon monoxide poisoning, that smoke alarms are fitted, and so on. A good letting agent can advise you on these matters. Be aware that you need to have a good tenancy agreement drawn up and check your tax situation as well.
Owning a buy to let property is not a get-rich-quick scheme; it is a medium-term investment, but it needs to be something that benefits you financially and doesn’t cause stress.
You will also need to declare your rental income from your buy to let property to HMRC.
Make sure you get the right buy to let mortgage for your needs and your circumstances. In order to do this, take an accurate look at your financial situation and make sure that you have all the facts to hand. Speak to a mortgage adviser who can find the best possible buy to let mortgage for you.