Buy to let

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Buy To Let Mortgages – What you need to know

Purchasing a property to rent out to tenants is a great way to not only make money but invest in your long-term future as well.  A Buy To Let loan works in a very similar way to a residential mortgage but with a few subtle differences. Remember, purchasing a buy to let can be very rewarding, but there are some downsides too, not least when your tenant doesn’t pay the rent! 

Who Can Get A Buy To Let Mortgage?

A buy to let mortgage is designed specifically for anyone wanting to buy a property and invest in the buy to let property market. If you are looking to get a buy-to-let mortgage, bear in mind that it can be more challenging than when you purchased your first property. 

The application criteria are more stringent with lenders wanting to make sure you can afford to pay back the mortgage as well as your residential mortgage. If your tenant misses a monthly rent payment, lenders need to be comfortable that you will be able to meet your mortgage repayments without your rental income.

You should also make sure you understand what the risks are to you when investing in a buy to let property. Before you start, think carefully about whether you can afford the repayments and make sure your credit history file is in order. 

One thing you can’t do much about is your age but bear in mind that most lenders will have an upper age limit for borrowers. This is normally 75 but can be lower and is the age you will have attained when your mortgage is completed.

How Do Buy To Let Mortgages Work?

The type of mortgage you get depends on several factors. Some lenders will offer you an interest-only mortgage where you will repay only the interest on the loan over the mortgage term but not the capital. This means that if you want to purchase the property outright, you will need to pay a lump sum, the amount you borrowed, at the end. Interest-only mortgage repayments will be lower than a standard mortgage.  

A mortgage broker may also offer you a loan with similar terms to a residential mortgage where you will make your monthly mortgage payments over a set yearly period to include interest and capital. Fixed-rate mortgages are also available for buy to let landlords.

How Much Deposit Will I Need On A Buy To Let Mortgage?

As a buy to let loan seems riskier to lenders, many will ask you to pay a bigger deposit upfront. The majority of lenders will be looking for around 20-25% of the value of the property, this is nearly double what you would need for your residential home. As with a standard mortgage, the bigger the deposit, the lower the interest rate will be, so if you can put down a bigger deposit, it’s best to do so.

How much can you borrow on a buy to let mortgage?

The amount the bank will let you borrow will depend on the particular criteria they follow. Most lenders usually require that you collect 25% more than your monthly repayments on the property in rent. If you can charge the tenants more than 25%, you may find your lender will allow you to borrow more. 

By researching rental prices, you will be able to find an average rental cost for the area you wish to purchase your rental property in. For example, if your interest payments are £500, you will need to charge your tenants at least £625 a month. There are some online mortgage calculators that you can use to give you an estimate of how much you could borrow.

Where Can You Get A Buy To Let Mortgage From?

If you have saved a big enough deposit and feel you would like to apply for a buy to let mortgage, we recommend you get in touch with one of our qualified mortgage brokers.  Our mortgage brokers have access to the whole of the market, meaning they can access multiple lenders to offer you the most suitable product. A mortgage broker will also help match your criteria so that the mortgage you are taking out best suits your individual circumstances.  

Planning For When There Is No Rent 

With all the checks in the world, there may be a time when your tenants aren’t able to pay their rent on time. Unfortunately, this doesn’t mean your mortgage repayment won’t be collected by your lender, so it is essential to budget for this and have some money in the reserve. A late payment on your mortgage can have serious consequences and you should remember that interest will be added to your mortgage if a payment is reduced or missed.

What Fees Are Involved With A Buy To Let?

When purchasing a property with the idea of renting, you must be aware of the different fees and charges you will be liable for in addition to the deposit payable on  Buy to Let (BTL Mortgages). These include the following:

  • Stamp Duty – You will be required to pay the stamp duty land tax on your new property at an increased rate.
  • Solicitors fees – These can be a percentage of the property value or a flat fee.
  • Survey – It is advised you get an in-depth survey before you complete the purchase
  • Mortgage Broker Fee – this fee is usually built into the deal; however, some mortgage brokers charge a flat fee.
  • Letting Agent Fee – Your letting agent will find you new tenants and look after the property.
  • Landlord Insurance – This can be more expensive than standard home insurance

Don’t forget that when you come to sell the property the transaction will be liable to Capital Gains Tax which is not normally charged on the disposal of residential properties.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR PROPERTY. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Why Spot On Mortgages to this?

Other types of mortgages are available such as Variable, Cashback, Capped, Collared & LIBOR.