Buy to Let Mortgages

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Some buy to let mortgages are not regulated by the Financial Conduct Authority 


Some buy to let mortgages are not regulated by the Financial Conduct Authority 

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Buy to Let Mortgages

Ross Joyner answers some frequently asked questions about Buy to Let mortgages.

What is a Buy to Let mortgage? How do they work?

A Buy to Let mortgage is where you intend to purchase a property as an investment, rather than to live in yourself. You would have a rental income coming in that will pay the mortgage.

What is the difference between a Buy to Let mortgage and a residential mortgage?

A Buy to Let mortgage will allow you to rent out the property. Other than that there’s not really much difference. You normally pay a higher rate for a Buy to Let mortgage and the arrangement fees tend to be a bit higher.

Overall, there are fewer lenders available to you. With a residential mortgage, the amount you can borrow is determined by your income – but with a Buy to Let mortgage, the borrowing is determined by the rent that you can achieve for the property.

How is a personal Buy to Let different to a limited company Buy to Let?

A personal mortgage is held in your own name, whereas with a limited company, you would normally set up an SPV (special purpose vehicle) and the property is owned by the limited company. But you will still have to have personal guarantees for limited company Buy to Let.

Who can get a Buy to Let mortgage?

Normally, lenders like you to be at least 21 years of age and already own your own main residence, with or without a mortgage. Some lenders also have minimum income requirements, which may be £20,000 or £25,000.

How much can you borrow on a Buy to Let mortgage and what deposit do I need for a Buy to Let mortgage?

In today’s market, the bigger deposit you put down the more favourable rates you can get. We would advise putting down at least a 25% deposit to unlock the widest choice of lenders.

Unlike a residential mortgage, where the amount you can borrow is determined by your income, for Buy to Let it’s solely determined by the rental value of the property. Different lenders have stress tests to determine how much you can borrow. Normally, the rent must cover the mortgage by 145%, assuming an interest rate of 5.5%.

How much does a Buy to Let property cost? What other costs are involved?

You have your normal solicitors’ costs as when you are purchasing a normal property. You have a stamp duty surcharge which is 3% higher – you always end up paying more in stamp duty. Quite often, the lender’s arrangement fees are also higher for a Buy to Let mortgage than you would normally see on a residential mortgage.

Speak To an Expert

Even if you’re just started the process or you’re just thinking about moving or buying a home, it’s worth giving us a call. We’ll give you an idea of what you can borrow and what everything will cost. You can put a plan in place if you’re not quite there yet.

Is it illegal to rent out a house without a Buy to Let mortgage and is it illegal to live in your own Buy to Let property?

You can rent a house out with no mortgage on it, that’s absolutely fine. But if you had a residential mortgage and rented it out, you would be breaking the terms of your mortgage offer, unless you had sought their permission beforehand.

If you had a Buy to Let property which you were residing in yourself, again you’d be breaking the mortgage terms.

Should I choose interest only or repayments on a Buy to Let mortgage?

That depends on what you want to get from the property. A lot of investors like to use Buy to Let as an additional source of income, so they choose interest only to increase their monthly cash flow.

Whereas others prefer to pay down the mortgage over a period of 25 years like you would with a residential mortgage. At the end of the term, you have a mortgage-free property. It just depends which of those routes you’d prefer to go down.

How many Buy to Let properties can I own?

You can own as many as you like. Lenders do have criteria over how many you have in the background. For example, some lenders won’t accept you if you have any more than three properties, or four properties or 10 properties.

If you have four or more, you’re classed as a portfolio landlord, so you would undergo additional underwriting checks. But in theory, you could have as many as you like and still obtain a Buy to Let mortgage.

How can a mortgage broker help in terms of Buy to Let?

We can save you time because it’s a complicated area. You need someone who can understand the markets, the latest news and the ever-changing criteria. These things change on a day-to-day basis – so let us guide and support you to find the most suitable deal for your circumstances.

Your property may be repossessed if you do not keep up with your mortgage repayments.

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.