Buy to Let Mortgages
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Trying to find the right mortgage by yourself can take a huge amount of research, possibly without access to all products on the market. With our long years of experience and knowledge of how the market works, you’ll get excellent service and the promise of the right mortgage deal for you. Whatever your circumstances, your first stop for a huge range of mortgages is right here.
Years ago, it was much more difficult to get a Buy to Let mortgage than it is today, as they are now centred on investment properties rather than personal residences. A buyer would usually have to work with a specialist lender, and may even have had to pay for the property with cash–this made it very difficult for new buyers to enter the market, as most criteria were quite specific and geared up for landlords with a track record.
However, as the markets evolved, Buy to Let properties became more common, and these kinds of mortgages are now virtually a standard offering from high street banks and building societies. With an experienced mortgage broker to offer the correct advice, it’s now easier than ever to get a Buy to Let mortgage.
Buying a property to rent out is now quite an attractive prospect and can pay great dividends in the long term. As such, whether you are a first-time landlord, a portfolio property owner or someone looking to let out a Home in Multiple Occupation (HMO), it’s likely that lenders will have a mortgage product to suit your needs. However, finding exactly the right mortgage can be a challenge, and getting the correct advice can be as important as finding the best property.
At The Mortgage Centres, our specialist mortgage brokers will be able to run through the whole process with you, and give you the right advice to suit your individual circumstances. We’ve helped everyone from experienced landlords to first time buyers identify the best mortgage lender for their needs–get in touch today to find yours.
It’s true that Buy to Let mortgages are usually available to people who already own a residential property, but there are now an increasing number of people who become Buy to Let landlords while living with friends or family, or rent a property themselves, in order to get a foot on the property ladder and have an investment for the future.
Many lenders are happy to deal with people who own a property, rather than ‘own/occupy’, and while it may be more difficult to get a Buy to Let mortgage as a first-time buyer, it is not at all impossible. The lender would be likely to make sure you could afford the mortgage on a residential basis. Whatever your circumstances, you will need to provide information about your current property portfolio as well as income and rental evidence.
While many people take out Buy to Let mortgages on a personal basis, it is also possible to apply for a mortgage under the name of a limited company that has been set up for owning and letting properties. Keeping your business and personal finances separate can make sense in many circumstances, but whether you want or need to use a ‘Limited Company Buy to Let’ mortgage may depend on your individual tax status and investment goals. A suitably qualified accountant or tax specialist will be able to give you insightful advice as to what will work best in your circumstances.
This is a question we often hear from many landlords, both new and experienced. There are a few options you could consider:
Choosing to rent out your property on a room-by-room basis, rather than as a whole unit, can significantly increase your lettings income. However, you will need to obtain the relevant permissions to do this from your local council, and also be willing to handle the needs of several individual tenants within the property.
It might seem like a good idea to buy a property for £300,000 and let it out for perhaps £1,200 per month, but it’s worth considering alternatives. Purchasing two properties each worth £150,000 that you can let out for £750 will give you far more return on your investment in the long term, as well as splitting your risk of a default on any rent payments.
Experienced, professional advice can be worth just as much to you as increasing profits from other methods. A specialist broker can help you to access the most favourable deals, and will be invaluable when it comes to the small print. The mortgage with the lowest rate might not be the cheapest in the long run when you take into account the lender’s fees and other costs. Getting the right mortgage can mean a saving of thousands of pounds over the lifetime of the loan.
This is a very simple way to increase your profits on a monthly basis. Paying only the interest amount each month on the mortgage, instead of a repayment amount as well, will decrease your outgoings and give you a higher return. On the other hand, you will need to make sure you have a way of paying off the mortgage in the long term. There are pros and cons to both kinds of mortgage, and an experienced advisor will be able to work out which will be best for your circumstances.
As with a personal mortgage, much will depend on how risk-averse you are as a landlord. Obviously, a fixed interest rate means you know what you’ll be paying on a monthly basis, but it is often a slightly higher rate than a tracker rate. You’ll lose out should interest rates fall, but on the other hand you’ll be protected in the case of a rise in the Bank of England base rates.
A tracker mortgage might carry a slightly cheaper interest rate than a fixed rate mortgage, but does come with the risk of monthly payments increasing in line with any rises in the Bank of England base rate. The attraction is obviously that the rate will drop if the Bank of England rate falls as well–your decision may rest on where you see the pattern of interest rates at the time of you obtaining the mortgage.
Buy to Let Fixed Rates
This type of mortgage allows you to maintain a fixed rate of interest for a certain period–usually two, three or five years. This means your monthly payments will be predictable throughout this time, and you’ll be protected from any changes in the economy; an unexpected rise in the Bank of England base rate. Conversely, if the Bank of England rate drops, you will miss out on any savings.
Buy to Let Tracker Rates
The interest rate for this type of mortgage is usually a certain percentage rate (or fraction of a percentage) higher than other various rate indexes, which will be set and then ‘tracked’ for a fixed period–usually two, three or five years. Which rate is used will depend on the lender, but the most common rate to track is the Bank of England base rate, while some specialist lenders will elect to follow the ‘LIBOR’ (London Inter-Bank Offered Rate).
If the index your mortgage is linked to rises, then so will your interest payments. Similarly, if it drops, then your interest payments will decrease by the same percentage. In the long run, taking this risk could either save you money, or cost you more.
You do however, get some immediate savings as the rates offered by the lender for a tracker rate are usually a little cheaper than those for a fixed rate mortgage. So, if interest rates remain level throughout the term of the mortgage, then you will have saved money compared to what you would have paid for a fixed rate mortgage.
The criteria you need to meet in order to obtain a Buy to Let mortgage are likely to vary from one lender to the next, but there are a few initial basics.
Firstly, Buy to Let mortgages are designed for people who want to purchase or remortgage a residential property for investment purposes, and who typically will own their own home (either outright, or also mortgaged). If you are a first-time buyer, it is not impossible to get a Buy to Let mortgage, but it will be more difficult, and the lender would expect you to be able to afford the loan on a residential basis.
Secondly, although you would commonly apply for a Buy to Let mortgage as an individual, there are mortgage products available to Limited Companies that have been set up for the sole purpose of managing a property lettings business. These products will suit some landlords more than others, and you should consult a qualified accountant or tax expert to find out if they would work for you.
After this, there are some key areas that lenders will always consider:
You will find that a Buy to Let mortgage is available for most kinds of property, but there will always be a few property categories that require a specialist approach, or will be simply unsuitable for this type of mortgage. Here are the few where you might find things differ from a typical a Buy to Let mortgage:
These are generally suitable for a Buy to Let mortgage, but this will depend on the terms of the lease. Typically, lenders will want to see at least 70 years left on the lease, as any period shorter than this will affect the term of the mortgage and often the value of the property. It could be possible to negotiate a new or extended leasehold with the owner or current landlord.
Mobile homes and houseboats
As with a residential mortgage, lenders tend to exclude houseboats and mobile homes as a mortgageable property, as they are not seen as a suitable security for the loan.
Certain types of apartments and flats might be perceived as a higher risk than others, will usually need attention from a specialist niche lender for a Buy to Let mortgage. This can include:
If you own other properties in the same block, street or postcode, you might find the lender will also take them into account in order to minimise their exposure.
As ever, lenders will take slightly different approaches to certain types of property, according to their internal criteria. To avoid disappointment and multiple unsuccessful applications to lenders (which can negatively impact your credit score), you should talk over your circumstances and aims with an experienced mortgage broker–contact one of our team today, who will be able to guide you through the processes and identify which lender may be the best one for you.
Yes, this is entirely possible–there is no difference between a mortgage for a Freehold or Leasehold property, as long as an appropriate lease is in place. You should always bear in mind that Leasehold properties will have extra associated costs, such as ground rent and annual service or maintenance charges for the upkeep of communal areas and facilities, and services supplied by the property owners.
The only problem that will set you back regarding your mortgage will be if the remaining period on the leasehold is too short. If there is less than 70 years to run on the leasehold term, this will have a negative impact on the property value and therefore also the mortgage value and duration. However, it may be possible to negotiate a new or extended lease with the current property owner and/or the landlord.
Lenders will take any regular charges for services and facilities into account when making their affordability calculations and defining how much they will be willing to let you borrow against the potential rental income. It’s very important for you to find out exactly what all these charges and costs will be, and whether any increases in the future will impact your net income from the investment.
The actual owner of the Freehold on the building will also be considered within the mortgage application. In the past, property investors may have had an interest in the Freehold and were also taking out a Leasehold on a property within it, but many lenders are now no longer happy to extend a mortgage if this is the case.
Can I get Help to Buy on a Buy to Let property?
Unfortunately, you are not able to use the government’s Help to Buy scheme to purchase a Buy to Let property or second home, as this was designed to help first-time buyers to get a foot on the property ladder with their own home. Any property bought with the help of Help to Buy must be used as a residence by the borrower.
Comparing normal residential mortgages to a Buy to Let mortgage like-for-like, you can expect Buy to Let to be more expensive on a loan-to-value basis. Looking at the costs involved, you would be dealing with the following:
A lender’s completion fees vary greatly from one to another, and may be up to 3% of the loan value in some cases, reflecting the commercial nature of the property.
Lenders set their interest rates according to the commercial proposition, the prevailing market at the time and their higher level of perceived risk. It will not be a huge difference, but the rate will be a little higher than you would expect for a residential mortgage.
Most borrowers opt for an interest-only mortgage for their Buy to Let property, due to a combination of reasons. Tax efficiency is a main driver of this decision, but there are also budgetary reasons where the owner can make sure there is a healthy surplus each month to account for unexpected costs like repairs or periods where the property may fall empty, with no income while costs are ongoing.
With an interest-only mortgage, the loan amount is constant and does not decrease with time. This also means that over the course of the loan, you will end up paying more interest in total. This can work well for borrowers with a certain tax position, but might not be suitable for everybody. You should check with a qualified adviser to make sure your mortgage arrangements are suited to your personal circumstances and objectives.
For many investors, Buy to Let properties offer a great opportunity for profit–both from rental income and in capital gain through the increased value of the property over time, despite the risks of a drop in the market, defaults by tenants or increased costs on the property. For most Buy to Let landlords, the gains justify the risks, but before you purchase a property as an investment, you need to understand all the costs that go with property ownership.
The main cost to consider is your income tax liability. As you are receiving income from the letting of the property in the form of rent, this must be declared and will be subject to tax. However, as chancellors and budgets come and go, the method by how this tax is calculated continues to change, but has given rise to an increased demand for ‘Limited Company Buy to Let’ mortgages as more landlords have arranged their businesses to be more tax-efficient. If you are unsure about what to do, you should speak to a qualified tax adviser.
Capital Gains tax
As you may have to pay tax on the profits if you sell the property in the future, it’s wise to consider how capital gains tax will affect your income and cash flow at the time. Again, tax can be a complicated subject, with often changing rules, so you would be best served by talking to an experienced accountant or tax adviser.
As the owner of a property being rented out to tenants, you will have a legal responsibility to the people living in your property that it is safe, legally habitable and maintained to a certain standard. This obviously comes with a cost, so you should be sure to allow for a surplus in your budget to use for any emergency or regular maintenance. As we all know, some problems, such as failed boilers or broken roofs, can happen out of the blue, and HMOs (houses of multiple occupation) can attract different rules and further costs, so it will pay to do your research into the regulations where you live before going into business as a landlord.
You may wish to manage your property yourself, dealing with all the paperwork, collections and demands of your tenants, or you may prefer to enlist the services of an agent to handle the day-to-day management on your behalf. This of course comes with another cost–usually a fee of around 10-15% of the rental income. You might also be required to pay administration fees for each new tenancy and the landlord agreement. Again, it’s best to do your research locally, so contact some letting agents, ask for a copy of their landlord contract and study their terms.
While setting up your property investment and letting business as a limited company can offer income tax benefits, you should remember that the profits of your limited company will be subject to corporation tax. A limited company also incurs an initial cost of registering with Companies House, and you will additionally have to pay a certified accountant on an ongoing basis to prepare and file your company accounts to HMRC.
Purchasing the property
Aside from the actual cost of the property, there are many peripheral costs you will need to take into account. These are likely to include, but are not limited to the following:
Of course, the largest ongoing cost for most landlords is the mortgage on the property. For most Buy to Let investors, a mortgage is a necessity and will be automatically factored into their budgets, but you should always bear this expenditure in mind when considering potential gaps in income when the property may be empty and unlet.
This is one of the most common questions we hear from those looking into purchasing a Buy to Let property. Unfortunately, it can be difficult to give a simple answer, as the level of deposit each lender will ask for varies according to other conditions around the mortgage.
It’s possible to get a Buy to Let mortgage with a 15% deposit, but the criteria will be very stringent and it could be difficult for many to qualify. It might be more accurate to consider a deposit figure of 25% in most instances, and in some cases, it might need to be higher still.
The most important deciding factor for lenders when they consider how much you will be able to borrow is the anticipated rental value, this will in many cases override their usual minimum deposit criteria, and not in your favour. For example, if you were looking to purchase a property valued at £300,000, then a 25% deposit would be £75,000. However, if the potential rental income from the property meant they were only willing to lend £210,000, this would take priority over the minimum deposit requirement and you would need to put down a 30% deposit in order to proceed with the mortgage.
Fortunately, some lenders are now willing to take personal income from other sources or a salary into account when considering a mortgage’s affordability, viewing this as topping up the shortfall from rental income. This is commonly referred to as ‘top-slicing’.
What happens when you want to move your Buy to Let mortgage from one lender to another? For most Buy to Let investors, a mortgage will be a necessity and a cost that is factored into their budgets when looking to purchase an investment property. So, it’s extremely important to make sure you have the best mortgage deal to suit your individual circumstances, and that the property can provide sufficient overall surplus income to accommodate monthly payments plus costs.
Whether your mortgage is a fixed or variable rate, it is likely to have an end date to an initial deal period of two, three or five years, after which it will revert to the lender’s standard variable rate. As this rate is invariably higher than that enjoyed in the initial deal, borrowers will usually try to secure another mortgage scheme that more suits their need at the appropriate time.
In this situation, most borrowers will look to other lenders to find a favourable deal on a remortgage product and transfer from one lender to another. While this is a perfectly valid course of action, at The Mortgage Centres we will, in addition to this, also consider what your current provider will be able to offer you as an existing customer, via a product transfer, before making our recommendations as to what will best suit your requirements.
Overall cost of the mortgage will always be the main factor, but there are several other benefits of remaining with your current provider that may well tip the balance:
You will find many mortgage calculators online that will give you a guide to many aspects of mortgages–from working out the monthly repayments on a specific loan amount to showing you how much stamp duty you will pay based on the purchase price–all assisting you in your property purchase decisions. However, special mention needs to be given to calculators aimed at Buy to Let investors.
As mentioned, the most important deciding factor over the level of borrowing a lender will allow is the rental value of the property. Each individual lender will have their own methods of calculating affordability based on this factor, so we can’t say there is one rule to cover all, but a Buy to Let calculator will be an incredibly useful tool in determining how much you may be able to borrow based on the level of rent that a property will command. In turn, this will also give you a good indication of how much deposit you will need to provide when considering buying an investment property. As ever, it pays to be as informed as possible.
Buy to Let mortgages are a very specific area within the home lending market, and will require specialist advice to navigate all the obligations and pitfalls. The criteria for how much you will be able to borrow will vary from one lender to the next, and may include financial stress testing, the age of the borrower, or a maximum number of properties held by one landlord or their limited company.
When choosing a lender for our clients, we look into these and many other factors to determine which will be the best to meet your needs and aspirations. An inexperienced borrower may waste a lot of time making numerous unsuccessful applications to various lenders–a practice that will not only diminish their hopes, but also negatively impact their credit rating. A mortgage broker that knows and understands the Buy to Let mortgage market will be able to recommend exactly the right lender and help you with your application, greatly reducing the chances of failure.
At The Mortgage Centre, our team of expert mortgage advisers will be able to get the hard work done and source a mortgage to meet your requirements and targets for income. Get in touch today!
Another term for ‘transfer’, porting is more commonly referenced when discussing residential mortgages, but not so often in respect to Buy to Let products. Whichever term is used, and whatever the type of mortgage, the meaning is the same: a portable mortgage is designed to allow the borrower to transfer the terms and conditions of an outstanding home loan to another property, should they choose to sell the property the mortgage is currently secured against and buy another.
You should recognise though, that even if a lender is open to the mortgage being transferred, this will still be subject to you meeting their usual criteria at the time. If this does not turn out to be the case, and they are unwilling or unable to help, then they are able to decline your transfer application. Unfortunately, this will mean you are unable to port the mortgage plan and could further be subject to an early repayment charge should this be applicable if or when the mortgage on the current property is redeemed.
Happily, nearly all Buy to Let mortgages are portable, but there are still some where it is not possible. Although this is not often the case, the onus is still on the borrower to ensure they are familiar with the terms of their loan, so you are best advised to thoroughly check your mortgage agreement to make sure all the terms are suitable.
If you have a poor credit history, then the idea of joining the thousands of people who own a Buy to Let property as an investment for the future and a new source of income may seem like a pipe dream. Fortunately, however, there are specialist lenders in the market who are prepared to lend to those potential investors with a bad credit record. Adverse credit events that will need to be considered are:
It’s important to remember that the amounts involved, the severity of the event, and the amount of time that has passed, as well as the applicant’s current financial situation, will affect the view taken by the lender when they consider the mortgage application.
Aside from the potential borrower’s individual circumstances, the only other conditions generally considered when applying for a Buy to Let mortgage are those as for any other applicant–the situation of the property itself and the rental value of the property, in order to define what the provider will be willing to lend.
It’s absolutely possible, but how difficult the process will be will depend largely on their residential and employment status. If they are resident in the UK and have secured their right to live permanently here, and indeed also if they are here on other forms of Visa such as Tier 2, then there should be minimal issues and their application will be viewed in the same way as any other applicant. Their employment status and length of time spent in the UK may also have a bearing if neither have been in place for long, but there should still be options available.
However, things will be a lot more difficult if you are a foreign national no longer living in the UK, but you should be able to find help from a highly specialist, niche-market lender familiar with this area. The product options may be rather limited, and you might expect any background checks to be a little more thorough than usual, to reflect the additional risk that the lender is undertaking in lending to someone outside the UK.
Whether people have moved abroad to retire or for work reasons, it’s quite common for them to consider buying an investment property here to let out, and also to perhaps be available for them to use on their return to the UK. Whatever the reason, it’s likely that they will need to look at an expat Buy to Let mortgage, but fortunately there are many specialist lenders on the market who will be happy to cater to their needs.
Most mainstream lenders will not entertain the additional perceived risk involved with extending a mortgage on property in the UK to individuals based outside of the country, and those that will undertake this plan will apply for tighter criteria for underwriting. Perhaps if the applicant is working for a global employer, this will help your case, but it is no guarantee. What is certain is that a lender will demand a higher than usual deposit–perhaps in the region of 25-30% of the property’s value or more.
Buy to Let mortgages for expats is a very specialist area of mortgage underwriting, and lenders in this sector typically use their own very individual criteria when granting applications. For this reason, it’s recommended that you discuss your situation with an experienced mortgage broker with knowledge in this field, who will be able to identify the right lenders to meet your needs, guide you through the process and ensure you get the correct information.
There is one final note for UK nationals living in Australia. Due to a treaty between the British and Australian governments that effectively bans any lending of money between each country’s residents, it is very problematic for Brits living in Australia to secure a mortgage there.
You will be pleased to know that there is no difference between buying a new-build property and an existing property, whether you are looking at a residential mortgage or a Buy to Let investment opportunity. As usual, the lender will state a minimum deposit required and the anticipated rental income will be a key factor in their calculation when deciding how much they are willing to lend on the property.
Buying a new-build property for a Buy to Let investment can offer many benefits–mainly the reduced need for redecoration and maintenance in the early years of ownership, which gives an opportunity for greater profit. You may also find other common incentives from the developers, such as vendor contributions to purchase fees, and integrated appliances or white goods already supplied.
It’s true that when purchasing a Buy to Let property, you will be likely to pay more Stamp Duty. The government introduced new Stamp Duty rates in 2016 that mean anyone buying a second or additional property will have to pay an extra surcharge of 3% on top of the current Stamp Duty rates.
For a quick guide to how much Stamp Duty you will have to pay, please use our online Stamp Duty calculator.
You’ll be happy to know that there is actually no official limit on the amount of Buy to Let properties you can own, and there are a number of landlords who have an extended portfolio of properties that they manage in the course of their property business.
However, some lenders will impose their own limits on the size of the portfolio you can hold with them, or also perhaps your total exposure across your several properties. Most mainstream lenders will usually be content with a maximum of 10 properties overall, with at most 4 under mortgage, and perhaps a cap on the total level of borrowing between £2M-5M, depending on the lender.
If you have over three investment properties, you are normally viewed as a ‘portfolio landlord’ and the lenders will be more thorough in their underwriting criteria. They will often carry out a full analysis of your portfolio to ensure that you can meet their requirements for affordability across all properties, and will typically require your income tax assessments to prove your level of rental income, as well as copies of your tenancy agreements.
Given the level of detail involved, and the risk of greater income tax exposure, you may be considering shifting your property business into a Limited Company. We highly recommend you talk to a qualified tax advisor and a specialist mortgage broker then making decisions about the structure of your business and further mortgage borrowing.
Typical Buy to Let mortgages that are taken out on properties solely for investment purposes are not regulated by the FCA (Financial Conduct Authority), as the borrower’s immediate family will not be living in the property.
However, a property will fall under the scope of regulation in cases where the property is already occupied by a family member, or will be in the future. This usually refers to immediate family–for cases where you might buy a property that would then be let out to siblings, parents, grandparents or children. Members of the extended family are not classified in the same way, and so a conventional Buy to Let mortgage would be perfectly suitable in the case of buying a property that would, for instance, be rented by a cousin or nephew.
There are exceptions to this rule–if your family member was living in less than 40% of the property, which would typically apply in the case of an HMO, where there are multiple other non-related occupants also in the building. As ever, you should consult with an expert before making any final decisions.