Buy to Let Mortgages
24/05/2022
(Last Updated: 08/12/2023)
11
5 min read
Buy to let (BTL) mortgages are specifically tailored to the landlord market and the mortgage criteria differs to residential mortgages. This article will help you understand what you need to do when applying for a buy to let mortgage and what can be done to avoid the pitfalls.
You should also read our other article called The top things a buy to let landlord must know and Buying Property Through a Limited Company to help decide whether to buy as an individual or hold the property as a company.
We have specialist buy to let mortgage brokers who have access to the whole of the mortgage market and can guide you through the application process. Click to book your free mortgage consultation.
Who is eligible for a buy-to-let mortgage?
The following are a list of criteria your mortgage lender will need from you when applying for a BTL mortgage:
- Your rental income exceeds the mortgage
- You have a minimum of 25% capital invested in the property
- You have a good credit score
- Be young enough to have paid off your mortgage by age 70 – 75
- You may struggle to get a BTL mortgage if you don't own your own residential home
Access to whole of the market – 100% Impartial advice – No need for face-to-face meeting
How do buy to let mortgages differ to residential mortgages?
BTL mortgages differ to residential mortgages because:
- Mortgage Interest rates are normally higher
- Mortgage product fees and mortgage valuations are normally higher
- You have to invest a minimum of a 25% deposit
- They are normally interest-only; you don't have to pay off any of the principle each month but have to pay this in its entirety at the end of the mortgage term
- You don't get as high a level of protection as a residential mortgage because you are viewed as a more sophisticated lender. Most products are not regulated by the Financial Conduct Authority, unless you're letting to a close family member, in which case the FCA does regulate and there are stricter affordability rules ("consumer buy to let mortgage").
Look for buy to let hotspots
There are certain pockets of England and Wales that have a much greater rental yield. Click to read out top rated Hot Spots for 2017/2018.
How much can you borrow for a buy to let mortgage?
There are several metrics to assess your application. Some are manually reviewed and others flow through a computer system before they ever get assessed by an actual person within the mortgage lender.
Here are some of the key criteria for that the majority of mortgage lenders use when assessing your mortgage application:
- Deposit - You will need a minimum of 25% of the purchase price. You are likely to achieve a better mortgage interest rates if you can invest more of a deposit and reduce the loan to value.
- Rental Income - The maximum you can borrow depends on the projected rental income you'll look to receive. Most lenders will require this income to be 25-30% higher than your mortgage repayments.
New assessments stress test to see if you could settle the mortgage repayments if the base rate increased by 4 to 5%.
You should therefore find out what rent you're likely to get by examining any available data of rental rates for the area you're buying in – local press, letting agents and online.
If you can't prove the rental income via an existing tenant then the mortgage lender will require you to provide evidence from a local letting agent, normally regulated, to confirm what the achievable monthly rent would be.
Keep money saved for vacant times
You should always factor into your investment when your dwelling might be void, i.e. no tenants so no rent coming in.
During these times you will still need to maintain mortgage repayments and pay bills including council tax, gas, electrics and water.
Who can you get a buy to let mortgage from?
Our independent mortgage brokers are FCA regulated and can help you find the right BTL mortgage for your needs from more than 600 different products and the first consultation is free!
Call 0333 344 3234 (local call charges apply).
Your home may be repossessed if you do not keep up repayments on your mortgage.
Access to whole of the market – 100% Impartial advice – No need for face-to-face meeting
Frequently Asked Questions
Usually %25, but may vary from 15%-40%.
Most lenders will expect you to have your own income, separately to a minimum rental yield of 125% of the mortgage payments.
BTL mortgages are regulated or unregulated. An unregulated BTL mortgage is the typical one, also known as an investment property loan, and does not allow for owners or their families to live in the property.
Regulated BTL mortgages, also known as a family mortgage, are designed to allow the owner and/or their family members to live in the property, for example:
- You own the property and rent rooms out to your son and his friends.
- You live in the property and rent spare rooms out to lodgers.
You may be able to rent a single room out to your son with an unregulated Buy to Let mortgage, if they occupy 40% of the property or less, in an HMO (house of multiple occupancy).
Interest rates are usually lower on a residential mortgage as owner occupiers are considered to be lower risk than tenants. As a landlord you have to be prepared to have some months with no rental income - between contracts or when carrying out major or emergency repairs.
As a result, buy to let mortgage rates are typically 1 percentage point higher than on a residential mortgage.
Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
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