Getting any kind of mortgage can be stressful enough. Working with a specialist mortgage broker can help you get access to unique deals, as well as expert advice.
A buy-to-let mortgage does exactly what it says on the tin; it is a mortgage for people who want to buy a property – such as a flat or a house – and then rent it out to tenants. Buy-to-let mortgages often require a larger deposit than standard residential mortgages, and interests can be higher. As opposed to residential mortgages, which are regulated by the Financial Conduct Authority (FCA), buy-to-let mortgages are not usually regulated if they are bought as an investment.
If you’re looking to enter the rental property market, or make a large investment, then a buy-to-let mortgage is a great option. Whether you’re adding to an already established portfolio or this is your first venture into rental investments, the perfect buy-to-let mortgage can help unlock a whole other avenue of revenue.
As with a residential mortgage, you will need to put a deposit as a down payment on your chosen property. The required minimum deposit will likely be higher – usually between 20% to 25% of the property’s value
Choose your mortgage type. We’ll go into more detail on the different types of mortgage further down the page, but many people choose to take out an interest-only buy-to-let mortgage. This means that you will pay off the interest each month, rather than reduce the capital amount
Once your mortgage term comes to an end, you will need to repay the remaining capital debt – which is the full amount of the mortgage. Some people choose to save into an ISA so they can make the repayment, or they may sell the property to pay it off instead or remortgage to extend the term
Different lenders will have different eligibility criteria for the buy-to-let mortgages that they offer, but most will look at the following:
– Age – Most lenders will only lend to those aged 21 and over, whereas some lenders don’t have a max age limit
– Deposit – As we mentioned above, you will likely need a larger deposit. The average is around 25% but some will ask for as much as 40%
– Borrowing history – Lenders will take a look at your credit score and history to see if you are a responsible borrower; do you make your monthly payments on time? If you’re not sure, take steps to improve your credit score before applying
– Income – Most lenders will want you to earn a minimum of £25,000 in order to be considered for a buy-to-let mortgage, especially if you are a first time investor. This can vary depending on the lender
With a Mortgage Experience adviser on your team, you can sit back, relax, and make yourself a cuppa, safe in the knowledge that we will be doing all the heavy lifting to find you a suitable mortgage with the best rates available. This gives you more time to pack, and well, do the actual physical heavy lifting (should you wish) as you move into and enjoy your new home or the financial benefits of your remortgage.Get In Touch
With this type of mortgage you will pay a fixed amount over a specific period of time (years). Usually, the longer the fixed period, the higher the interest rate attached to the deal. A fixed rate gives you security and peace of mind that your payments won’t change over the period of the fixed term.
This type of mortgage takes the lender’s standard variable rate and applies a specific discount. If that rate fluctuates, then yours will too, however the discount will stay the same.
Almost the opposite of a discount variable mortgage, the rate of interest for this type of mortgage is set at a percentage above the variable rate, but it is marked against the Bank of England’s base rate. Again, if this rate fluctuates, then so will your rate.
As long as you use the right mortgage broker, it is entirely possible to secure a buy-to-let mortgage through a limited company. Many banks and high street lenders will turn away this kind of application, preferring to stick to the ‘standard’ mortgage, which ultimately means that applicants may resort to taking out loans rather than experience the benefits a mortgage can bring.
Whether you have a small or large portfolio, you can experience great tax benefits by buying a property as a limited company, especially if you pay a higher rate of tax. They’re also suitable for those who want to purchase a property as a collective rather than two individuals.
The main difference between a standard residential mortgage and a buy-to-let mortgage is that the latter is most commonly offered on an interest-only basis. This means your monthly payments will only be for the interest accumulated on the mortgage. The capital debt on the house – which is the money borrowed – will not reduce unless you make additional payments, or choose a repayment mortgage.
Once your mortgage term comes to an end, you will need to pay off the capital debt in full. This can be done by selling the property, or taking out another mortgage.
Unlike most residential mortgages, buy-to-let mortgages are commonly offered on an interest-only basis. This means that your monthly payments will only cover the interest on your mortgage. Your capital debt – the money you’ve borrowed – will not go down unless you choose to make extra payments or take out a repayment mortgage.
Most buy-to-let mortgage lenders will ask for a larger deposit. The average is 25% of the property’s value, however, there are lenders who will accept a 15% deposit depending on the circumstances. Typically you would need to be either a homeowner/current landlord, or have a minimum income that meets their criteria. This is because letting out the property is never guaranteed, which means the income from rent payments is never a sure thing. A larger deposit protects the lender in the event of a default on payments.
Most residential mortgages will feature a clause that prevents you from making money by renting out your house. This can vary between lenders, but ignoring such a clause could land you in serious legal trouble. For example, the lender could find you in breach of your mortgage terms and demand a repayment in full.
It is common for people to switch from residential to buy-to-let mortgages, and many lenders will allow this. Of course, it’s best to seek expert advice and consult with knowledgeable mortgage professionals before making the switch.
As well as a larger deposit, you may also face larger upfront costs, have to pay a higher rate of interest, and may need to pay more stamp duty for a second property that isn’t your main residence.
Other costs to consider include:
The interest rate applicable to a buy-to-let mortgage depends on a number of factors, such as:
There are pros and cons to both types of mortgage, and it is not a decision to be taken lightly or without expert guidance.
An interest only mortgage means that you only pay the loan’s interest, whilst paying off none of the capital. Once the term ends, you will need to find the funds to pay for the remaining capital balance.
A repayment mortgage means that you will pay off both the interest and some of the capital each month. At the end of the repayment term, you’ll need to pay off both.
This will depend entirely on your mortgage provider, and how much they are willing to lend you. Some may only offer one or two, whereas others may have no limits if you have the deposits available and the rental income required to cover the monthly costs.
If you’re thinking about taking out multiple buy-to-let mortgages, be sure to get in touch with one of our advisers for expert advice.
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