Buy-To-Let Mortgage - Guide -
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Buy-to-let mortgages

A comprehensive guide on buy-to-let mortgages

What is a buy-to-let mortgage?

A buy to let mortgage is a loan designed for landlords who buy property as an investment specifically for renting out. To get approved for this mortgage, you'll need a good credit rating and decent capital (deposit). A buy-to-let mortgage is similar to a residential mortgage to some extent, but with some distinct differences. In this article, you will be taken through:

  • The difference between a buy-to-let mortgage and a residential mortgage

  • Who buy-to-let mortgages are for

  • How a buy-to-let-mortgage works

  • The criteria for a buy to let mortgage

  • How to get buy-to-let mortgages

  • Things you should consider for a buy to let mortgage

  • The maximum amount you can borrow

Working with a mortgage broker

If you are considering taking out a mortgage, then speaking to an expert mortgage broker is essential. Mortgage brokers have access to a wide range of products, will liaise with solicitors, conduct admin and support, offer advice on any additional bolt-on products you may consider when purchasing a property (such as life insurance or/and a will) and can even help speed up the entire process.

Find out more

Who are buy-to-let mortgages for?

Buy-to-let mortgages are the best opportunity for seasoned investors but present great opportunities to new customers alike

Landlords with a portfolio of more than one property often use interest-only mortgages to finance their investments. They usually choose interest-only mortgages because the rental income of buy-to-let mortgages covers the monthly interest, and they think of it as a long-term investment.

You may also be interested in a buy-to-let mortgage if you are moving out of your own house and are thinking about renting it out. You may need to talk to your existing mortgage lender for consent to let.

Further reading: Why use a mortgage broker?

Steps to taking out a buy-to-let mortgage

Fill in a web application

Fill in a web application

Speak to a mortgage broker

Speak to a mortgage broker

Find a product that works for you

Find a product that works for you

How does a buy-to-let mortgage work?

Purchasing a property using a buy-to-let mortgage is like buying an investment without needing to save up the full amount to buy it entirely. You let out the property and, as the landlord, charge people to rent it. Then, the rent you charge will pay your mortgage payments and possibly make you a profit each month.

Capital growth

The alternative to making a profit each month from the rent you receive is selling the property for more than you initially paid for it, making a longer term profit. As prices of properties usually increase over time you will likely make a long term profit even if the rental yield only covers the mortgage payments and no more.

Different types of buy-to-let mortgages

There are many types of buy-to-let mortgage available. Therefore, it's important to know about all types of buy-to-let mortgages, with the considerations for each, so you can make an informed decision.

Interest-only mortgages

Here, you only have to pay the monthly interest rather than repayments on the capital (amount your borrowed). This results in lower monthly payments and then the repayment of the capital at the end of the mortgage term.

Tracker mortgages

The interest rate of this type of mortgage 'tracks' the Bank Of England base rate and so you pay interest slightly higher than the Bank Of England sets out. If the interest rates at the Bank of England increase, you have to pay more each month on your mortgage. You can take advantage of this mortgage if you predict there will be a sustained period of low interest rates

Fixed mortgages

A fixed-rate mortgage has a set interest rate for a fixed amount of time (i.e. the first 2-5 years of the mortgage). This means that the mortgage interest rate will never change while in the agreed-upon fixed term. However, the fixed term is an introductory offer and after the initial period, the interest rate will revert to the banks standard variable rate (SVR).

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Additional considerations

Landlord Insurance

Landlord insurance is an important thing to consider while getting a buy-to-let mortgage. It is specifically designed for investors who rent their properties and usually covers the accidental damages to property and property contents.

One of the important benefits of landlord insurance is landlord liability coverage. If your tenants are injured or, in extreme circumstances, die on your property, the terms of the liability coverage helps to offset their injury and life insurance.

Income Tax

Once you start to receive a rental income, you must declare it as income and therefore could pay income tax, depending on your annual income and the value of the rental income.
Stamp Duty You have to pay stamp duty if you carry out a transaction after getting a buy-to-let mortgage, the percentage of which is different in different parts of the UK.

Whats the difference between a buy-to-let mortgage and residential mortgage?

The rules for buy-to-let mortgages are similar to those for residential mortgages except for some key differences. These differences are what makes it more difficult to buy a property specifically for rental purposes, but may make the monthly mortgage payments easier:

Larger deposit: these mortgages bring in a higher risk than ordinary mortgages because the property owners often face problems with rent collection. This makes it necessary for you to pay a larger deposit, with a minimum of 25% of the property value and going as high as 40%.

Higher initial fees: you may face higher upfront fees and more stamp duty compared to a residential mortgage.

Earning-based amount: the monthly payments you will need to make are usually based on the monthly rent you will be receiving. But they can also be tied to your other sources of income.

Criteria for a buy-to-let mortgage

Each lender has different criteria for buy-to-let mortgages. Usually, lenders accept your application on the basis of

  • The expected rental income from the property
  • Your financial circumstances
  • Age requirements

Expected rental income

Lenders will analyse the amount of rental income from your property and compare it with the monthly repayments you can make on the mortgage. Your rental income must be at least 125% of your mortgage repayments.. Lenders usually ask you to confirm the annual rental yield, and will only give you a loan after investigating how much similar properties in the area are rented out for.


Your financial circumstances

Lenders will approve your loan on the basis of your financial circumstances, which they assess by examining how much the repayments will be and your:

Credit history: Your credit history must be in good shape. This means no defaults, CCJs, or a pattern of late payments.

Income: Many lenders set the criteria of an annual income of at least £25,000 for approval of buy-to-let mortgage applications.

Outgoing and existing debts: Lenders usually check your loans, credit cards, and expenditures, specifically those which you already owe on the mortgage on your home.

Deposit: You must put down a minimum deposit of 20% of the property's value - although it can vary between 20-40%, depending on the lenders’ preferences.

Residential mortgage: Some lenders also demand that you have an existing residential mortgage.


Age requirements

Sometimes, lenders set a minimum age requirement for approving buy-to-let mortgage applications which is usually 25 years.

There can also be an upper age limit that lenders might set, which usually caps at 70 to 75 years. This upper age limit is usually set at the start of the mortgage and goes up to when it is supposed to end. For example, if the upper age limit for a 20-year mortgage is 70, the maximum age at which you may be allowed to apply for it would be 50.

How to get buy-to-let mortgages

If you are seeking a buy-to-let mortgage, it will serve you well to keep certain factors in mind.


Finding the good deals

There are many buy-to-let mortgage providers in the market, which means that you have to make an informed choice and select the one most suited to your priorities. You can speak to an expert mortgage broker by clicking here;

Consulting a mortgage broker

Since the mortgage market, and by extension, the housing market has grown immensely over the past few years, there is a plethora of options when it comes to mortgages and lenders. Mortgage brokers comb through these massive lists of deals and offers, compare the different interest rates available, and study your circumstances. Since they work for you, they are able to advise you on the best mortgage option available.

Using a mortgage broker for a buy to let mortgage can help you get

  • Lowest possible interest rates
  • Discounts on surveys and valuation fees
  • Faster processing times

We have gone into the details of how mortgage brokers do all these things, and more, in another article. But the bottom line is that mortgage brokers are a Godsend when it comes to buying properties in the UK, especially if you are in the market for a buy-to-let mortgage.

Affordability calculation for buy-to-let mortgages

Before applying for a buy-to-let mortgage, it's important to analyse whether you can afford it.

Check your credit history

Usually, there is a requirement set by lenders based on your credit history. Therefore, it's important to maintain a good credit score by making timely debt payments, especially if you have been a customer of that lender before.

Application for buy to let mortgage

After reviewing all the necessary requirements and finding a mortgage provider suitable for your needs, you have to fill out the mortgage application. All the information required by the lender needs to be filled out accurately, and all the supporting documents must be collected and attached. After reviewing your application, lenders usually send a surveyor to measure the property’s value. After calculating and evaluating the value of the property, the lender will send you the formal mortgage offer.

After reviewing your application, lenders usually send a surveyor to measure your property’s value. After calculating and evaluating the value of your property, the lender will send you the formal mortgage offer.

Final Review

Usually, lenders require verification of you having followed all their requirements. For that purpose, you have to hire a solicitor who will verify that you followed the process stringently and met the criteria fully. In this step, you will also be informed about when to pay your deposit.

Money Transfer

After filling out the application and completing the final review, the lender will release the money. Finally, the lender will send you a completion statement to confirm the amount and due dates of your repayments as agreed upon.

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Because we play by the book we want to tell you that...

1. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you, that’s why we pass you onto an Expert.

2. A lifetime mortgage is a loan secured against your property. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care.

3. With a lifetime mortgage you’ll still retain full ownership of your home.

4. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.

5. Mortgage Advice Bureau Later Life offer lifetime mortgage products from a carefully selected panel of providers.

6. Unless you decide to go ahead, Mortgage Advice Bureau Later Life’s service is completely free of charge as their fixed advice fee of £1,295 would only be payable in completion of a plan.

7. ClearKey is an independent marketing website which only acts as an introducer to companies who offer advice on various financial plans, products and services.

8. Our partners are authorised and regulated by the Financial Conduct Authority.

9. are not authorised to give any advice and we are not liable for any financial advice provided by or obtained through a third party.

10. Life insurance products attract terms and conditions. Price information contained within this website are for illustration purposes only. You will receive a full policy document upon application which will set out the terms, conditions and limitations of cover provided under the plan.

11. Your home may be at risk if you do not keep up repayments. Think carefully about securing debt against your home. When consolidating existing borrowing be aware that extending the term could increase the amount repaid.