Buy-to-let
Property as an investment or income source
If you are considering purchasing a property, or adding to your property portfolio, in order to rent it out to tenants you will need a buy-to-let mortgage. There are different mortgage products specifically for people who require a mortgage for a property they rent out.
Buy-to-let mortgages typically have higher rates than standard residential mortgages. Lenders view this type of mortgage as higher risk, as the landlord often depends on the rent in order to pay the mortgage. Should the tenant default on their rental payment, the lender sees a higher risk of the landlord being unable to pay mortgage.
Our trusted advisors are experienced in the buy-to-let market and are here to help you find the optimum mortgage to suit your circumstances.
The Financial Conduct Authority do not regulate some buy to let mortgages.
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I bought my first house in 2014, I used VA Mortgages and they were wonderful.
I have just bought my second house and decided to purchase a buy-to-let property at the same time.
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What is different about a buy-to-let mortgage?
Buy-to-let mortgages and residential mortgages are essentially a loan used to purchase a property. However, if you do not plan to live in that property and instead would like to rent it to a tenant, you will need a buy-to-let mortgage.
Lenders consider tenanted properties to be a higher risk, and typically charge higher rates for mortgages if the property is used in this way. If you would like to purchase a property to rent out, you will need to be able to pass specific eligibility criteria and have a deposit of at least 20% or more of the property price.
Unlike residential mortgages, buy-to-let mortgages are normally interest only rather than repayment. You benefit from lower monthly payments than with repayment mortgages, but you must be able to repay the capital in full at the end of the mortgage term. If you plan to sell the property to pay this capital, you must have a plan if the property value has dropped.
The fees associated with taking out a mortgage also tend to be higher for buy-to-let mortgages.
You should always seek independent accountancy advice on the best way to repay your buy-to-let mortgage.
How much can I borrow on a buy-to-let mortgage?
With standard residential mortgages, a lender will assess your income and expenses to determine if you can afford the mortgage payments. For buy-to-let mortgages the lender will look at different criteria. You may still need to be earning above a minimum criteria, but the mortgage application will be less focused on you and your circumstances, and more focused on the expected rental income.
In simple terms, the mortgage lender will expect a minimum rental income of between 125% and 145% of the total annual mortgage payment, depending on your income tax status.
To work out if you would qualify, consider the amount you expect to receive in rent and use this to work out what the maximum mortgage could be:
- You expect your tenant to pay you £750 per month totalling £9,000 per year of rental income
- The minimum rental income is 145% of the annual mortgage payment
- If £9,000 is your 145% minimum rental income, then the maximum 100% annual mortgage payment is (9000/145) x 100 = £6,206
- This works out at mortgage payment of £517 per month
If you cannot find a mortgage product that costs £517 per month or less, then you could struggle to find a buy-to-let mortgage to suit the property.
What is the typical minimum criteria for a buy-to-let mortgage?
Typical minimum criteria for buy-to-let mortgages include:
- A deposit of at least 20% of the property value, although you will find better deals if you have a larger deposit.
- A minimum rental income of 145% of the mortgage payment.
- Earnings of more than £25,000 per year.
- A good credit record without excessive additional borrowing on credit cards and other mortgages.
- If you are an existing property investor; a summary of the properties values, outstanding mortgage balances, monthly mortgage payments and monthly rental income.
What is the typical minimum criteria for a buy-to-let mortgage?
Typical minimum criteria for buy-to-let mortgages include:
- A deposit of at least 20% of the property value, although you will find better deals if you have a larger deposit.
- A minimum rental income of 145% of the mortgage payment.
- Earnings of more than £25,000 per year.
- A good credit record without excessive additional borrowing on credit cards and other mortgages.
- If you are an existing property investor; a summary of the properties values, outstanding mortgage balances, monthly mortgage payments and monthly rental income.