Buy To Let Mortgages
Getting the right buy-to-let mortgage will ensure that you get the most appropriate deal for you and your investment.
FAQs about Buy To Let Mortgages
- What are the lending conditions?
- Can I afford a buy-to-let mortgage?
- Interest-only or repayment mortgage?
- How to find the right plan for you...
- Which lenders offer buy to let mortgages?
- Who can get a buy to let mortgage?
- Are buy to let mortgages more expensive?
- How much deposit will I need to provide?
- How much can I borrow?
While conventional mortgage lenders will want to check the affordability of the repayments, a buy-to-let mortgage can come with a number of other conditions:
Minimum valuation – Some lenders will only be willing to agree a mortgage on properties valued above a certain level. Some stipulate valuations of £100,000 plus, while others will be happy with £40,000 or £50,000.
Property type – Some lenders are wary of properties that have an unusual construction. Properties like log cabins, period buildings or converted windmills could cause problems with mainstream lenders, but shop around because there will be a lender out there that is willing to offer you a mortgage.
Property portfolios – Buy-to-let lenders can restrict the number of properties you can have on one buy-to-let mortgage, while others might not like if you have multiple properties in the same area. Some lenders can also place a limit on the number of mortgages they are willing to agree with a single investor. However, there is a solution out there, it’s all about knowing where to look.
Age – If you’re looking to invest in a buy-to-let property to provide you with an income in retirement, by aware that some lenders will limit the mortgage term by age, so bear that in mind when searching for the right deal.
The affordability of a buy-to-let mortgage is not simply a case of balancing the rental income against the mortgage repayments. There are also a number of other costs of owning a buy-to-let property, and although almost all of these expenses are tax deductible, they are still costs you will have to pay in the first instance.
When considering the affordability of a buy-to-let mortgage, think about:
- Letting agent fees
- Maintenance costs
- Annual safety checks
- Buildings and landlord insurance
- Ground rents and service charges
- Repair work
- Property improvements
- And many more…
Although the lender may not take these additional costs into account, it’s essential you do.
The decision about your buy-to-let mortgage repayment strategy should be aligned to your particular investment goals. If you’re looking to supplement a pension or perhaps build a small portfolio of properties, the repayment route will ensure that at the end of the mortgage’s term, the loan has been repaid so you’re not left with any nasty bills.
Interest-only mortgages are usually more popular amongst professional landlords with multiple properties. This allows them to continually expand their portfolio thanks to the greater level of cashflow the smaller repayments allow them to have. At the end of the mortgage’s term, the property can be sold to repay the initial sum.
Different mortgage lenders have different terms, and we’re constantly working with the market to know what could be the most favourable deal in your particular circumstances. Your plan might work best with a fixed interest rate, or maybe a variable tracker. And of course we have to balance introductory rates and the arrangement fees. In the end, we will find the right fit.
The buy to let lending market is a mixture of well-known high street lenders (such as NatWest, Barclays, Santander and more) plus specialist buy to let lenders (the largest being BM Solutions and The Mortgage Works). Many of the specialist lenders are part of much larger organisations, with BM Solutions being part of the Lloyds Banking Group and The Mortgage Works part of Nationwide Building Society. The result of such a diverse market is a wide range of available products designed to meet the requirements of a variety of situations.
The availability of a buy to let mortgage depends upon a number of factors, all of which then depend upon the lender in question. Some lenders prefer to lend to applicants with previous letting experience, others specialise in lending to those who are starting off as a property landlord. As such, there is always a lender out there to support a wide range of customers.
Because buy to let mortgages are provided for a property which is not the applicant’s main residence, the interest rate and/or fee charged will tend to be slightly higher than for a standard residential mortgage. However, unlike with residential mortgages, it is not uncommon for these to be offered on an interest only basis, where the capital balance doesn’t decrease over the term of the mortgage. The rationale for offering an interest only mortgage on a buy to let basis is that the property could be sold at any point to repay the outstanding debt without impacting upon the applicant’s own housing requirements. Therefore, the monthly payments for a buy to let mortgage are often lower than for a residential mortgage.
Buy to let mortgages typically require a larger deposit than that of a residential mortgage. This is usually a minimum of 20% of the purchase price, although most lenders would require a larger deposit (often 25% – 30%) to be put down.
This is the one area in which lenders can substantially differ. Many lenders base the maximum loan purely on a calculation, which centres around the amount of rent that the property does/will achieve. Other lenders place a larger emphasis on the applicants income and expenditure, with a calculation of disposable income being used to establish the maximum loan available.