Buy to Let Mortgage
Helping you to invest in residential property
Buy to let mortgages (BTL) are for landlords who want to buy property to rent it out. The rules around buy-to-let mortgages are similar to those around regular mortgages, but there are some key differences.
Lenders assess the value of the property in question and the rent estimates (depending on the location and ongoing trends). The Buy to Let mortgage offer you receive takes into account the monthly rental income the property will generate for you, and will require a typical interest coverage of 125% for basic rate taxpayers and limited companies and 145% for higher rate tax payers. Some property investors prefer a Interest only mortgage with the mortgage being paid of by selling the property. However, the risk is that house prices may fall. As such some property investors prefer to take out a capital & interest payment mortgage.
There are also tax implications as to how the buy to let property is purchased (i.e. in personal/joint names, and or a limited company).
Who can get a Buy to let mortgage
Applying for a buy-to-let mortgage is not as easy as getting a standard residential mortgage. If you want to invest in property and become a landlord, but don’t enough capital to buy a property outright then you will need a buy-to-let mortgage. You can get a buy-2-let mortgage in your own name, joint name, or a limited company / Special purpose vehicle (SPV). You can get a buy-to-let mortgage under the following circumstances:
- You want to invest in houses or flats or even something larger such as an HMO
- You can afford to take and understand the risks of investing in property.
- You already own your own home, whether outright or with an outstanding mortgage.
- You have a good credit record and aren’t stretched too much on your other borrowings, for example, credit cards.
- You earn £25,000+ a year. If you earn less than this you might struggle to get a lender to approve your buy-to-let mortgage
- You’re under a certain age. Lenders have upper age limits, typically between 70 or 75. This is the oldest you can be when the mortgage ends not when it starts.
The criteria vary by Lender, and can be complex if you are a professional/portfolio landlord. If you are interested in investing in a property and do not meet the above circumstances, do contact us at Collabot Finance. We may still be able to help you.
Different type of Buy-2-Let Landlords
Not everyone who becomes a landlord necessarily sets out to do so. Circumstances often change, resulting in the need for a house move. Homeowners may decide to move in with a new partner. A job opportunity may require moving to a new location. A new baby may mean your current home becomes unsuitable. The natural next step would be to sell up and move on but unfortunately that’s not always as easy as it sounds. Rather than staying put and hoping for a sale, many homeowners decide to turn their home into a rental property, using the rent to pay the monthly mortgage repayments and freeing them up to make their next move. These landlords are known as accidental landlords.
Regardless of how you’ve become a landlord, it’s vital that you tell your mortgage lender if you’re going to let out a home that has an outstanding owner-occupier mortgage. Buy-to-let properties carry greater risks for lenders, so if you don’t tell your bank you could theoretically be invalidating your mortgage. Some lenders will grant you a ‘consent to let’ on your current deal, while others may insist on you switching to a buy-to-let mortgage.
If you’re struggling to get on to the property ladder in your area, you might be considering buying an investment property elsewhere and letting it out. You may look at this as a long term investment to get additional income from monthly rental payments, be part of your inheritance/pension planning, or more. The good news is that it is possible to get a buy-to-let mortgage as a first-time buyer – but it’s not necessarily easy. For example, you might need a bigger deposit than other investors to get a good deal, as the number of mortgages available to you will be significantly smaller.
You’ll also be giving up on some benefits available to first-time buyers – especially when it comes to stamp duty. This is because, if your first property isn’t one that you will live in yourself, you won’t qualify for first-time buyer relief. That said, you also won’t pay as much as a non-first-time buyer purchasing a buy-to-let: you will instead be charged the ‘home mover rate’, which is the same rate that a non-first-time buyer purchasing a home to live in would pay.
Building a portfolio of properties can often be a natural progression for landlords who own one or two properties as it allows them to use the overall income from the portfolio to cover any major repairs or refurbishments on a property. Professional landlords with four or more properties are often described as ‘portfolio landlords’. This is an important distinction, as rules introduced by the Bank of England back in October 2017 made it harder for these investors to access additional finance
Arranging buy to let mortgages across a portfolio of properties can be complex. Portfolio landlords will need to show mortgage details, cash flow projections and business models for every property you own when applying for finance. Portfolio landlords also face some other restrictions, which vary from lender to lender. For example, some lenders will set a maximum number of properties you’re allowed to have in your portfolio (up to 10 being the most common) and others use different ICRs and representative interest rates depending on how many properties you have. Other rules imposed by individual lenders include limits on maximum loan-to-value (LTV) ratios across a portfolio (for example, your overall portfolio must be at 65% LTV or lower), or the stipulation that the ICR from every property in your portfolio must be above 100%.
If you have a heavily mortgaged portfolio, you may find that these regulations make it more difficult for you to obtain extra funds.