Buy-to-Let Mortgage Eligibility Criteria

What Is a Buy-to-Let Mortgage?

A buy-to-let mortgage is a type of secured loan designed for those interested in purchasing a property as an investment. This loan enables someone to borrow money from a lender in order to purchase a property with the intention of renting it out and earning an income from it. This is a popular way of generating money and can be a great source of passive income.

Understanding the difference between buy-to-let mortgages and other types of home loans is important, as they have their own lending criteria, eligibility requirements and affordability assessments. Knowing these distinctions can help you make a more informed decision when choosing the right mortgage for your needs.

Eligibility Criteria for Buy-to-Let Mortgage Products

Buy-to-let mortgages can vary from lender to lender, but there is a range of criteria that many will assess. Generally speaking, these are grouped into the following categories.

How Much Deposit Do I Need for a Buy-to-Let Mortgage?

When looking to invest in a buy-to-let mortgage, the minimum down payment can range from 20% - 40%. Typically, this will be 25%. This means that if you're seeking a property worth £250,000 then you should be prepared to provide an initial deposit of between £50,000 (20%) and £100,000 (40%). If you arrive at the average 25% deposit, this would mean a down payment of £62,500.

The size of the deposit is significant for all kinds of mortgages, as it’s a key factor in obtaining the right mortgage and interest rates for your buy-to-let investment. A larger deposit often gives you access to more and better deals with lower interest rates – this can be particularly useful if you have bad credit and would otherwise find your options limited.

How Much Can I Borrow for a Buy-to-Let Mortgage?

When determining how much you can borrow, it's important to take into account the rental income expected. To gain an understanding of what rent should be charged, consult with local letting agents and look at rents for similar properties.

For instance, if you were looking to buy a property worth £250,000 and the expected rent was £1,300pcm, your expected yield would be 6.24%. This is considered a good yield, so the chances of being approved are higher.

For a basic rate taxpayer or landlord purchasing a buy-to-let through a limited company, the rental income you can charge must usually be 125% of your monthly mortgage payments. For example, if your monthly payment is £600 then you need to have a minimum rent revenue of £750 per month.

For a higher rate taxpayer, the rental income must be 145% of your monthly mortgage payments. For example if your monthly payment is £600 then you need to have a minimum rent revenue of £870.

Higher rent payments can allow you to borrow more and secure a larger loan.

For more guidance on how much you can borrow, you can use our handy mortgage calculator.

Can You Get a Buy-to-Let Mortgage if You’re a First-Time Buyer?

Yes, it's possible for first-time buyers to secure a buy-to-let mortgage and begin investing in property. There are some things to keep in mind, though:

• Your deposit will typically need to be at least 25% of the property’s purchase price
• You'll have to say goodbye to the advantages that only first-time buyers enjoy, such as the first-time buyer Stamp Duty exemption. Since you won't be residing in your initial property purchase but you’re also not purchasing an additional or second property, you’ll pay Stamp Duty at the standard rates
• When you apply for a buy-to-let mortgage as a first-time buyer, the lender will scrutinize the application in great detail in order to ensure that it’s not a “backdoor resi”. A “backdoor resi” is where someone tries to purchase a property they intend to live in under the guise that it will be operating as a buy-to-let in order to borrow more than their personal income would allow

These are some of the key considerations when looking for a buy-to-let mortgage as a first-time buyer. As much as you may want to jump straight into property investment, it's important to research and plan so your investment is successful, profitable and doesn't hinder you in the future. Speak to a mortgage broker on 0330 433 2927 to find out about your options in this situation.

How Can I Secure the Best Interest Rates on a Buy-to-Let Mortgage?

The best way to get the most favourable interest rates when taking out a buy-to-let mortgage is to shop around and compare different lenders. Different lenders will offer different packages, so it's important to weigh up all the options before you commit.

Wondering how you can do this? Go to an independent, specialist mortgage broker such as John Charcol. We have access to all mortgage products on the market, and we can find the most competitive deals available. We also understand the intricacies of the buy-to-let market, so we can provide tailored advice and guidance to ensure you get the best deal possible.

Do I Need Insurance as a Landlord?

Buy-to-let mortgage lenders will require that buildings insurance is taken out on a property. They won’t grant a mortgage without it. Buildings insurance is mandatory and covers any loss or damage to your rental property in case of a fire, flood, or other unexpected event. Whether it’s up to you to arrange buildings insurance will depend on your situation:

• If you’re purchasing a leasehold flat then you will likely pay towards the building insurance as part of the service charge
• If you’re purchasing a freehold house then it will be up to you to arrange buildings insurance

Some other types of insurance to be aware of as a landlord include:

• Contents Insurance - if you're letting furnished properties, this will cover contents that belong to you against loss or damage due to fire, storm, theft, and other causes. You can arrange this or make it a condition of the tenancy agreement
• Liability Insurance - sometimes referred to as public liability insurance, this covers costs incurred if a tenant or third party is injured on the property or their belongings are damaged while they are there. The service charge you pay on a leasehold will usually take liability insurance and buildings insurance into consideration
• Rental Protection Insurance - this covers the costs of lost rent and legal fees if a tenant fails to pay, or if you're unable to find tenants for an extended period of time. It is up to you to arrange this to protect yourself against rental voids

It’s important to note that there may be additional insurance policies available depending on your particular situation as a landlord. Be sure to do your research and choose the policy that best suits your needs.

Buy-to-Let Mortgage Eligibility Criteria Next Steps

Investing in property can be a great way to make money and build your wealth. But it’s important to understand the criteria you must meet to get competitive mortgage deals, as well as choose the right property and the mortgage product for your needs.

With the right preparation and guidance from an independent mortgage broker like John Charcol, you can confidently navigate the buy-to-let market and secure a deal that suits you. This will help to ensure that you make a wise investment and get the best return on your money. Get in touch with us today on 0330 433 2927 to see how we can help you.