Buy To Let Mortgages
Buy To Let
MORTGAGES
A buy-to-let mortgage lets you borrow money to purchase an investment property that you plan to rent out to tenants.
What Is A Buy To Let Mortgage?
Buy-to-let mortgages are designed for landlords who want to buy property to rent out and earn additional income. They work similarly to standard residential mortgages, but with a few key differences in criteria.
These mortgages are usually more expensive because lenders view rental income as less predictable than a homeowner paying their own mortgage. As with any mortgage, you’ll need to meet the lender’s criteria. For buy-to-let applications, affordability is often assessed based on the rental income the property is expected to generate.
Buy To Let Guide
How Does A Buy To Let Mortgage Work?
Buy-to-let mortgages usually come with higher interest rates than residential mortgages, as lenders see rental income as less reliable than a homeowner paying their own mortgage.
As with any application, you’ll need to meet the lender’s criteria to secure an offer, and affordability is often assessed using the property’s expected rental income. It’s also worth noting that most buy-to-let mortgages aren’t regulated by the Financial Conduct Authority (FCA).
Buy To Let Mortgage Rates:
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Other Buy To Let Options
Limited Company
A limited company buy-to-let mortgage means that a company, rather than an individual, owns and manages the rental property. This approach can be tax-efficient, particularly for higher-rate taxpayers. The company legally owns the property through a mortgage, which can offer various financial benefits and greater flexibility in managing rental assets.
HMO
A HMO mortgage is a specialized loan intended for financing houses in multiple occupations. Similar to a buy-to-let mortgage, these loans are often structured as interest-only and can come with either fixed or variable rates. They provide a way for investors to acquire properties that can house multiple tenants, maximising rental income potential.
Holiday Let
A holiday let mortgage is designed for those who want to borrow money to purchase a property intended for short-term rentals to tourists. This type of mortgage caters specifically to individuals who plan to operate their property as a business, allowing them to generate income through rental fees during peak tourist seasons.
Things to Consider
Benefits
Regular income
Owning a Buy-to-Let property can provide a steady stream of rental income. This can supplement your main earnings or provide an extra source of funds during retirement.
Build long-term equity
Over time, your property may increase in value, helping you grow your equity. While property growth isn’t guaranteed, a well-chosen investment can be financially rewarding in the long term.
Diversify your investments
Property offers a way to spread risk across different asset types, adding variety to your investment portfolio.
Affordability based on rental income
Buy-to-Let lenders typically calculate affordability using the expected rental income rather than your personal salary. This can make it easier to borrow, even if you already have a mortgage on your home. Top-slicing can provide additional flexibility if needed.
Risks and Considerations
Higher deposit requirements
Buy-to-Let mortgages usually require a deposit of 25–40% of the property value, which can be a significant upfront cost.
Eligibility criteria
Lenders may require you to be 21 or older, have a good credit history, and in some cases meet a minimum income. Most Buy-to-Let mortgages aren’t available to first-time buyers, so owning a property previously is usually necessary.
Tax implications
Rental income is subject to Income Tax, and depending on your overall earnings, you may be taxed at a higher rate than other income sources.
Landlord responsibilities
Being a landlord comes with ongoing costs and responsibilities. You’ll need to cover mortgage payments even if the property is empty, as well as repairs or emergency expenses like boiler replacements.
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Frequently asked questions
Got questions? Let’s answer them
What is a buy to let mortgage?
Buy To Let mortgages are for Landlords that want to buy property to rent out to a tenant and generate an additional income.
Buy To Let mortgages do have a lot of similarities to a standard mortgage (you’ll find that most lenders will have some form of Buy to Let mortgage product), though there are a few things around the criteria that are different.
For example, Buy To Let mortgages affordability may be assessed on how much Rental Income can be generated, rather than the amount of money you earn. The product fees and interest rates tend to be a little higher than a standard mortgage and it’s usually easier to have these mortgages on an interest Only repayment basis.
How do buy to let mortgages work?
Typically, Buy To Let mortgages are a bit more expensive than the type of mortgage used to buy your own home. That’s because traditionally, lenders see getting rent from tenants to be more of a risk than a homeowner making their own monthly mortgage payments. You also need to be aware that lenders will take into account extras such as maintenance costs, agent’s fees and landlord’s insurance when working out how much you can borrow.
Who can get a buy to let mortgage?
A Buy To Let mortgage can be for someone who wants to become a professional landlord or already owns properties and wishes to add to their portfolio. Others who may need to apply for a Buy to Let mortgage are ‘accidental landlord’s’ – those who own their home but would like to rent it out. If it’s for less than a year, you can apply for a Consent to Let. For longer than this period, you may want to think about switching to a Buy To Let mortgage.
Becoming a landlord might be planned, or by default you inherit a property. Either way, the asset you have can help towards your overall property investment strategy.
How much can you borrow with a buy to let mortgage?
The amount you can borrow with a Buy to Let mortgage is calculated in a different way to most other mortgages:
Your mortgage amount is typically based on how much income you will earn renting out the property.
This is what’s called your Income Coverage Ratio – it’s there to make sure your rental income is enough to cover the total cost of your mortgage and associated fees.
Lenders also use something called stress rate. This factors in your income and existing debt to calculate whether you could afford a higher rate of interest.
Can I remortgage my main home to buy a buy to let?
Yes! Most lenders will allow you to remortgage your main home and raise the deposit needed in order to Buy to Let. You’ll need to double check you have sufficient Equity within your home, the affordability stacks up, and that the money raised is enough to put down as a deposit.
This is one of the most common ways that we find people invest in property for the very first time.
*You may have to pay an early repayment charge to your existing lender if you remortgage early.
How many buy-to-let mortgages can you have?
There is no strict limit, but some mortgage lenders may impose restrictions on the number of mortgages or the total amount borrowed that they allow you to have.
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