Whether you are investing in buy to let properties for the potential income or for the potential capital appreciation, choosing the right mortgage is essential.
Put simply, business buy to let mortgages are for properties you purchase with the intention of renting them out to a third party. Consumer buy to let mortgages are for 'accidental landlords'. Both types of buy to let mortgages differ from traditional mortgages in that:
This is because Lenders view a property that you are not going to personally live in as a greater risk. Tenants do not have the same incentives as an owner occupier to look after the property and there may be times when the rental income does not cover the mortgage payments.
While for a residential mortgage it is possible to pay as little as 5% deposit (so £10,000 deposit on a £200,000 mortgage), Lenders like you to have a larger personal stake in a buy to let property as it reduces their risk whilst also giving them more chance of recouping their debt should they have to repossess the property.
These could include:
Be sure to contact a tax expert to see the full list for your situation.
The rental income generated by the property is also taken into consideration, and can affect the amount of money a lender is prepared to offer you. Typically the rent needs to cover 125% of the monthly mortgage payment (so if the mortgage payment is £500 a month, the rent must be at least £625 a month) , which is usually calculated on a notional interest rate of 5%. However, there are a number of variations on this, and it’s important to discuss this up front, if you’re looking to maximise your borrowing potential.
Lenders may also impose other restrictions or conditions on applications for a buy-to-let mortgage such as a minimum age, being an existing home owner and/or being resident in the UK. The property will need to be in a condition to be let and there may be restrictions on the number of bedrooms, number of floors or number of units in a block. HMO’s (Houses in Multiple Occupation) also have different rules and have separate criteria to standard residential buy to lets, and may or may not be subject to licencing by the local authority.
…don’t own a residential property?
…want to rent out the property I own and mortgage a new one?
…am retired or am entering retirement?
…already have mortgages on other properties?
…intend to buy as a Limited Company?
…don’t have a regular earned income?
…plan to build the property myself?
…don’t live in the UK?
John Charcol has access to the whole of market and is experienced in finding the most suitable mortgage product for less conventional situations. Also with the upcoming changes to buy to let / let to buy, it’s never been more essential to get the right advice. Please call one of our expert advisers and we will be happy to assess your unique needs.
However, do be aware that it is considered “mortgage fraud” to either let a property while only paying for a residential mortgage, or to move into a property that you have told the lender you are renting out. Make sure you are upfront with your broker / lender about your plans during the application process.
Our ‘borrow’ calculator will give you an idea of what you might be able to borrow (this will vary greatly from lender to lender). Enter your income details and use the 'Calculate' button.
Our minimum rent calculator will give you an idea of what you might need to charge in rent to qualify for a mortgage on a buy to let property, whether this is a business buy to let or a consumer buy to let property.
These figures represent the range of loan sizes, monthly payments and rental incomes you can expect to find on the market, from a range of different rates available (subject to availability and meeting lender’s criteria). For a more specific quote tailored to your situation, please give us a call.
Our buy-to-let mortgages table shows a selection of deals available to give you an indication of cost, but there’s more to mortgages than the headline rate. To make sure you’re looking at mortgages that suit your individual circumstances, talk to one of our experts.