Buy To Let Mortgage Broker & Advisors
A buy to let property is sometimes referred to as a BTL or a buy to rent property, this is a type of property investment, in which the investor becomes a landlord and rents out the property for profit. A buy to let mortgage is a loan secured against one of these properties.
More and more people are looking to make property investments but there’s a lot to consider before dive in and buy a property, as there’s no guarantee you will make any money. This page should explain buy to let mortgages in a simple way, so if you’re a first time buyer of a buy to let property, this should help you get things started.
What is the difference between a buy to let mortgage and a standard mortgage?
A buy to let mortgage differs from its residential counterpart in that it is largely assessed on the property’s profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than on your own personal financial circumstances. Some buy to let lenders will require you to have a minimum salary, typically £20,000 or £25,000.
Once agreed, your buy to let mortgage enables you to rent out the property to tenants, whereas you cannot do this with a residential mortgage.
Other buy to let mortgage differences & additional costs:
Deposit and property value
The minimum deposit you need to put down for a buy to let mortgage is higher than it is for a normal residential loan. Typically, you will be required to cover at least 20% of the property value yourself but to open up most of the market you would need to put down 25% on a BTL mortgage. As with any mortgage, the more you can save towards your deposit, the better rates you are likely to be offered, as a lower LTV means there is less chance of you defaulting on the mortgage.
If you already own your own home, it may be possible to use some of the equity you have accrued in this property to take out a second mortgage on a Buy to Let.
It’s common for the interest rates on buy-to-let mortgages to be higher than residential mortgage rates.
Arrangement fees on a BTL mortgage can be higher than on a conventional mortgage. You may also come across more arrangement fees that are calculated as a percentage of the amount you’re borrowing, rather than just a flat fee. It is also common for conveyancing costs to be slightly higher for a rental property.
Whenever you purchase a new property – either as your home, or as an investment – you will need to pay stamp duty. Unfortunately for landlords, the surcharges for BTL investors increased in April 2016, meaning that you now need to pay higher charges across all house bands. This was one of the measures announced a few years ago by the UK government to bring house prices down to manageable levels. Find out what stamp duty you will pay with our calculator.
As a BTL investor, you can expect to pay the following stamp duty figures on your purchase price:
- 3% up to £125,000
- 5% between £125,001 and £250,000
- 8% between £250,001 and £925,000
- 13% between £925,001 and £1,500,000
- 15% over £1,500,000
Overseas investors who are defined as non-UK residents will need to pay an additional 1% surcharge in any band, even if they are purchasing the property jointly with someone who lives in the UK.
Before making you an offer, your chosen mortgage company will need to value your property to make sure it is worth the amount you want to borrow. Some will carry out this work for free as part of their mortgage deal. If you have concerns regarding the condition of your property, you may want to arrange a homebuyer survey or a RICS survey. Though they are more expensive, these reports will go into more detail about any structural and maintenance issues that are present within the property, and how they may affect the property’s value, both now and in the future.
If you find that your property is valued below your intended purchase price, you can either go back to the vendor or the estate agent and place a lower offer, or contest the valuation by providing evidence that other similar properties in the area have recently been sold for the same price or higher.
Exit fees & Early Repayment Fee
Depending on your existing lender’s terms, you might have to settle exit charges when you clear your existing mortgage balance. If you are tied into a deal and want to leave the arrangement before the term is up, you may need to pay early repayment charges.
Ongoing financial commitments with a Buy To Let
Property maintenance fees:
It is possible to outsource the management of your investment property to a specialist property management company. But this kind of service doesn’t come cheap – you should expect these companies to charge at least 10-15% of the rent on a monthly basis.
Letting agent fees:
If you want to let an external company source and vet new tenants on your behalf, be prepared to shell out around 3 to 4 weeks’ worth of rental income.
Getting a buy to let mortgage with adverse or poor credit
If you are looking to become a landlord and you have a lower than average credit score, or a history of poor money management, you may find that your application is rejected by some of the more mainstream lenders, as you present too much of a risk. To increase your chances of finding a great buy to let mortgage deal, take active steps to improve your credit file and settle as many of your debts as you can before starting your BTL mortgage application to make more mortgage deals available to you..
For more information on applying for a mortgage with adverse credit, and advice to help you improve and protect your credit rating, contact us and our mortgage brokers can explain how you can move forward. To access your free credit file, click here.
Frequently asked questions: Buy To Let Mortgages
Can you get a mortgage without an income?
Yes. You are able to get buy to let mortgages without any income. There are a handful of lenders who solely relay on their rental income to determine whether the property is affordable for yourself. With this being stated, they do like to know that if there were any rental voids the mortgage repayments will still be met
Are some properties unacceptable for buy to let mortgages?
Standard brick and mortar homes are much more mortgageable than properties with more unique features. Some lenders will automatically dismiss listed buildings and those with thatched roofs and timber frame constructions, as they are deemed to be higher risk and therefore might get declined.
What kinds of mortgage products are there for landlords?
Fixed rate mortgages
Set rate mortgages are often a great choice for Buy to Let mortgages because they essentially lock in an interest rate for a fixed period. As the landlord, you will be pay the same amount towards your mortgage every month, which can make budgeting for ongoing management and tenant finding costs much more straightforward.
Tracker mortgages are variable rate mortgages that fluctuate according to the Bank of England’s base rate. Opt for this type of product, and your interest rate will be set at a margin above the base rate. It will go up and down depending on across-the-board interest rate changes.
Most lenders will cap their tracker mortgages so that your payments will never become unmanageable; others will collar them to ensure the rate cannot go below a minimum level.
The early repayment charges associated with tracker Buy to Let mortgages tend to be lower, so they are a great option if you want a little more flexibility from your deal.
Sitting Tenant Mortgages
Under the Rent Act of 1977, tenants who entered into a tenancy agreement with their landlord prior to 1989 may have the right to remain in the property they are renting, even if their landlord sells to a new investor.
The good news is, if you buy a buy to let with a tenant ‘in situ’, you can expect to pay a lot less for the house, flat, apartment or bungalow in question. However, many lenders will be unwilling to let you borrow on a property with a sitting tenant, so you could have trouble finding suitable finance.
What insurance will I need? – Buy to let mortgages
Investing in property can be highly lucrative – but it can be risky, too. That’s why, once you have found the right mortgage product, we would highly recommend taking out specialist landlord cover.
Standard home insurance will not account for missed rental payments, damage to the property and other issues exclusively faced by landlords, whereas a specialist Buy to Let insurance policy will offer protection in all these circumstances.
If you own multiple BTL properties, you could apply for portfolio landlord insurance, which will offer adequate protection to all your investments.
Is it illegal to live in a buy to let property?
If you want to move into a new property whilst keeping your existing home and renting it out, you will need to arrange a let to buy mortgage. This will consist of us finding you the Best Buy to let mortgage on your current property and then getting a let to buy mortgage for the onwards purchase.
How many buy to let properties can you have?
There is no official limit. We have some clients with extremely large property portfolios, who have literally hundreds of buy to let mortgages. However, that’s not the whole story…
Lenders either limit the number of buy to let mortgages you have with them (to say, three) or they limit the total amount of borrowing you can have with them.
Exposure limits with other lenders
However, some lenders will also limit the number of buy to let mortgages you can have with other lenders (often referred to as “in the background”). Again, this can vary, often from 4-10.
And there are many lenders who do not mind how many buy to let mortgages you have with other lenders.
If you are classed as a Portfolio Landlord, i.e. you have four or more buy to let mortgages, lenders are obliged to assess both:
- The buy to let mortgage application you are making
- Your entire buy to let mortgage portfolio and your total borrowing
If you have fewer than four mortgaged buy to let properties, lenders will probably ask about your background properties, but they will not form part of their underwriting.
And finally, if you own lots of buy to let properties outright, say four, or 10 or 100+ – you will not be classed as a portfolio landlord until four of your properties have buy to let mortgages.
There are so many things to consider when you’re considering buying or letting an investment property – and any mistakes now could cost you a great deal of time, money and resources later.
Luckily, our team of expert mortgage brokers are here to make sure your Buy to Let or Let to Buy venture gets off to a flying start.
Talk to our buy to let mortgage broker specialists
From finding the right agreement to handling all the paperwork ready for completion, our friendly Buy to Let mortgage brokers can manage the entire mortgaging process from start to finish. We’ll work closely with you to source a deal that will help you achieve your short, medium and long term financial goals – and we will work around the clock to ensure your mortgage application goes as smoothly as possible. Contact us today!