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Buy to Let mortgages are for properties that are intended to be used as a residential home for someone other than yourself. Once a property has been purchased with this type of mortgage, you are unable to live in it yourself unless you change the mortgage.
It is also sometimes possible to let out your property with a Standard Residential Mortgage by applying for Consent to Let, if you decide that you want to move out but retain the property as a rental investment.
Who can get a Buy to Let Mortgage?
The criteria for obtaining a Buy to Let mortgage can be different to that of a Standard Residential mortgage and the following should be considered:
- To apply for a Buy to Let Mortgage you can be a First Time Buyer or First Time landlord or both.
- You do not need a specific personal income but the higher your income the more options will be available to you.
- You will need a good credit score to secure the better rates but specialist lenders are available to help those with less than perfect credit history.
- Buy to let Mortgages can run well beyond your retirement age as the property is funding the mortgage cost.
How does a Buy to Let Mortgage differ from a Standard Residential Mortgage?
Buy to Let mortgages work slightly differently to Standard Residential mortgages. First and foremost, they are predominantly interest-only. The way they are underwritten also differs, as the amount you can borrow is based primarily on the potential rental yield (income) of the property, rather than solely on personal affordability, although you will likely also need to undergo a financial stress check. Your personal income can be used to enhance your borrowing on low yielding properties.
Other things to note about Buy to Let mortgages:
- Fees and interest rates associated with a Buy to Let mortgage tend to be higher than other mortgages.
- Some Buy to Let Mortgages are not regulated by the Financial Conduct Authority. Some exceptions to
this are Consumer and Family Buy to Let mortgages. - Using a specialist broker can provide you access to lenders who only deal with intermediaries and not directly with the borrower.
How much can you borrow with a Buy to Let Mortgage?
Unlike when you purchase your own home, the amount you can borrow will be based on the investment potential of your rental property rather than your personal income. Buy to let lenders can offer mortgages into the millions. Landlords can have as many Buy to Let mortgages as can be supported by the property income. Some of our landlord clients have up to 90 mortgages for many millions of pounds. Mortgage Lenders will usually expect the rental income to equate to 125%-145% of the monthly mortgage interest payments. Our Buy to Let specialists can help you find the right lender for a given yield on a given property.
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Planning for when no rent is coming in
Although rental properties are a strong investment option, it’s also sensible to consider that there will be periods of time when they do not produce income. For example, whilst you are carrying out renovations or advertising the property to rent.
Don’t rely exclusively on the property sale to pay off the mortgage
It’s common practice for landlords to sell off their rental property at the end of the mortgage term in order to cover the loan repayment. Given that generally only interest has been paid up to this point, the full original cost of the mortgage will still be owed. Often a rise in property value will allow for the sale to adequately repay this amount.
In some circumstances, however, the property sale will not be a credible repayment method. A market crash could mean the property value has fallen or a stagnant market may mean that you are unable to sell it in time to repay the mortgage. It’s therefore wise to have a backup plan in place, perhaps other investments, to mitigate this risk.
The tax implications of owning a Buy to Let property
Given that rental investments generate income, there can, of course, be tax implications and we can introduce you to specialist property accountants* to help you understand (and mitigate) your tax liabilities. This may include looking to have some of your Buy to Let properties held or moved into a limited company or other entity.
- When buying a property for the purpose of Buy to Let, there is an additional surcharge payable when it comes to Stamp Duty. As of March 2024, the surcharge begins at 3% for properties valued between £0-125,000 but can be as much as 15% on properties over £1.5m.
- Income Tax may be due on rental income.
- Capital Gains Tax may be payable when you sell your investment property.
You may be entitled to some tax relief on the property ownership costs, such as letting agent fees, property repairs and utility bills, as long as you retain responsibility for them.
*The referral service to a property accountant promoted here is not part of the Openwork Partnership offering and is offered in our own right. The Openwork Partnership accept no responsibility for this aspect of our business. The service is not regulated by the Financial Conduct Authority.
How can Mortgage Advice Centre Mortgage Advisers help?
Here at Mortgage Advice Centre, our Mortgage advisers are experienced in advising both experienced portfolio landlords and those new to property investment, including personal and limited company LLP. We have access to a wide range of deals some of which are not available on the high street allowing us to recommend competitive mortgage lenders that offer you the potential to maximise profits on your property investments.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.
