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Buy-to-Let (BTL) Mortgages are for landlords looking to purchase a property to rent out to tenants. There are a number of important factors to consider when taking out a BTL mortgage, such as the type of property you’re looking to buy and your expected rental income.
The rules around buy-to-let mortgages are similar to those around regular mortgages, but there are some key differences.
The main difference is that with a buy-to-let property, the lender will not only take into account your personal income and outgoings, but they’ll also factor in the rental income from the property you’re looking to buy.
Read on for more information about how they work, how to get one and what mistakes to avoid…
Who Can Get a Buy-to-Let Mortgage?
You can get a Buy to Let mortgage under the following circumstances:
- You want to invest in houses or flats.
- You understand and can afford to take the risks of investing in property.
- You already own your own home, whether outright or with an outstanding mortgage.
- You have a good credit record and aren’t stretched too much on your other borrowings, for example, credit cards.
- You earn £25,000+ a year. If you earn less than this you might struggle to get a lender to approve your buy-to-let mortgage.
- You’re under a certain age. Lenders have upper age limits, typically between 70 and 75. This is the oldest you can be when the mortgage ends not when it starts. For example, if you’re 45 when you take out a 25-year mortgage it will finish when you’re 70.
How do Buy-to-Let Mortgages Work?
Buy-to-let mortgages are a lot like residential property mortgages, but with some key differences:
Higher fees: The fees tend to be much higher.
Higher interest rates: Interest rates on buy-to-let mortgages are usually higher.
Increased Deposit: The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%).
Interest-Only Mortgage: Most BTL mortgages are interest-only. This means you only pay towards the interest on the mortgage loan each month, and not the actual debt itself. This means that your mortgage repayments will be lower each month, but the size of your mortgage debt will not decrease.
At the end of the mortgage term, you’ll need to either sell the property or find another way to repay the outstanding capital. BTL mortgages are also available on a repayment basis.
Smaller Loan to Value (LTV): The maximum Loan-to-Value (LTV) is usually lower than with a residential mortgage, meaning you’ll need a larger deposit.
Affordability Assessment: The rental income from your tenants will be taken into account when assessing whether you can afford the mortgage payments. Most lenders will want to see that the rent covers 125% of the monthly mortgage payment.
Unregulated: Most BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions, for example, if you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent or sibling). These are often referred to as consumer buy-to-let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.
For consumer BTL mortgages, advising, arranging, lending and administering the mortgage is protected under the same laws as residential mortgages and is regulated by the Financial Conduct Authority (FCA).
What Are The Requirements Of A Buy-To-Let Mortgage?
When you apply for a buy-to-let mortgage, the lender will want to know:
- How much the property is worth
- How much you want to borrow
- Your personal circumstances (income, outgoings, employment status, etc.)
- The rental income you expect to receive from the property
- Your plans for the property (how long you intend to let it out, whether you plan to make any improvements, etc.)
The amount you can borrow and the interest rate you’ll be offered will depend on all of the above factors.
Is Buy-To-Let Worth It?
The main reason people invest in rental property is for the potential rental income and capital growth. With house prices steadily increasing and rents remaining high, buy-to-let can be a lucrative investment.
However, it’s not without its risks – as with any investment, there’s always the potential for things to go wrong. For example, you might have trouble finding tenants, or you might have to spend money on repairs and maintenance.
It’s also worth bearing in mind that changes to tax relief and mortgage interest rates could impact your profitability in the future.
Despite the risks, investment in the rental property market can be a great way to generate extra income and build your wealth over the long term. If you’re thinking of investing in property, make sure you do your research and seek professional advice to ensure it’s the right decision for you.
How Much Deposit Do You Need For A Buy To Let Mortgage?
The deposit you need for a buy-to-let mortgage is usually a minimum of 25% of the property’s value.
However, some lenders may require a higher deposit, so it’s important to check with your chosen lender before you apply.
What Are The Risks Of Buy To Let?
There are several risks associated with buy-to-let investments, including:
Void periods – when your property is empty and you’re not receiving any rental income.
Repairs and maintenance – unexpected repairs can be costly and eat into your profits.
Tenant default – if your tenant stops paying rent, you could find yourself out of pocket.
Changes in legislation – new tax changes or mortgage interest rate increases could impact your profitability.
Are Buy To Let Mortgages More Difficult To Get?
Getting approved for a Buy to Let mortgage is usually more complex than for a standard residential mortgage, so the application process can be longer and more detailed. Buy-to-let properties are considered a higher risk by lenders, so you might need a larger deposit than for a standard mortgage.
While you'll need to demonstrate that you're a reliable borrower, the mortgage lender will also need to assess the property itself. They'll want to be satisfied that it's in a good condition and is likely to attract tenants based on the location and projected rental income.
It's important to remember that each lender has different criteria for approving buy-to-let deals, so it's always best to speak to a mortgage advisor before you apply. They'll be able to assess your individual circumstances and match you with the most suitable lender.
What Are The Costs Associated With Buy To Let?
There are a number of costs associated with buy-to-let investments, including:
Purchase price – the cost of the property itself.
Deposit – you'll usually need a minimum deposit of 25% (although this may be higher depending on the lender).
Legal fees – solicitors' fees and other legal costs.
Survey fees – a professional survey of the property is often required by the lender.
Stamp Duty Land Tax – you'll need to pay a higher rate of Stamp Duty on second homes and buy-to-let properties.
Mortgage arrangement fees – some lenders charge a fee for arranging your mortgage.
You should also factor in the ongoing costs of being a landlord, such as:
Maintenance and repairs – you'll be responsible for any repairs or maintenance required on the property.
Landlord Insurance - it's important to insure your buy-to-let property against damage or loss.
Buildings insurance – you will need to insure the physical structure of the property, including the fixtures and fittings.
Letting agent fees – if you use a letting agent, they'll charge a fee for their services.
Ground rent and service charges – if your property is leasehold, you'll need to pay ground rent and service charges to the freeholder.
Mortgage interest – you'll need to repay the interest on your mortgage, which is usually charged at a higher rate for buy-to-let mortgages. If you're on a repayment mortgage deal, you'll also need to repay some of the capital each month.
Taxes – you'll need to pay income tax on any profits you make from renting out your property.
The costs of buying and owning a rental property can add up, so it's important to factor them into your calculations when considering a buy-to-let investment.
What Are The Tax Implications Of Buy To Let?
It's important to speak to a qualified accountant or tax advisor before you purchase an investment property, as the tax implications can be complex. They'll be able to advise you on the most tax-efficient way to structure your investment and help you minimise your liability.
As a buy-to-let investor, you'll need to pay tax on your rental income. You'll also be liable for Capital Gains Tax if you sell the property for more than you paid for it.
Can I Buy A Buy-To-Let As A First-Time Buyer?
Yes, there are certain mortgage lenders who cater to first-time buyer landlords. However, you will usually need a larger deposit than for a standard buy-to-let mortgage – typically 30% or more.
You might also find it harder to get approved for a mortgage if you’re a first-time buyer, as many mortgage lenders will often view you as a higher risk. The application process is likely to be more complex and time-consuming, so it’s important to be prepared.
We would highly recommend seeking professional advice from an experienced mortgage broker if you’re a first-time buyer looking to purchase a buy-to-let property.
Talk to an Expert
In comparison to residential mortgages, finding buy-to-let mortgage deals can be more difficult and time-consuming. It's important to remember that each lender has different criteria for approving buy-to-let mortgages, so it's always best to speak to a mortgage broker before you apply. They'll be able to assess your individual circumstances and match you with the most suitable lender.
Our friendly team of expert mortgage advisors are on hand to answer any questions you have about buy-to-let mortgages. We can help you find the right mortgage for your circumstances and guide you through the application process.
We've helped thousands of people secure buy-to-let mortgages and we could do the same for you. Take a look at our customer reviews to see what our clients have to say about us.
Get in touch today and we'll be happy to help.
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Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
