Frequent changes to tax rules and regulations regarding buy-to-let investments has made buy-to-let mortgages less straightforward than they previously were.
With increasingly restrictive lender criteria, entering the buy-to-let market or growing your existing portfolio is now more challenging, but it’s not impossible by any means.
It’s our job to understand current legislation to ensure that our clients keep ahead of the game and that’s why it always pays to speak to an expert about mortgages.
We’d love to talk more, so please call us on 0844 69 333 60 or click here to contact one of the Mortgage Search Go team for more details. We can also help regarding re-mortgaging of your buy-to-let property.
What’s the criteria for a buy-to-let mortgage?
Typically, lenders generally lend up to 75% of the value of the property, although there are a few that will consider 80%, and even 85%. Lenders will look at the prospective borrower and make a decision based on many factors. Some lenders will impose a minimum income requirement (e.g. £25,000 pa), while others will have no minimum requirement at all.
As with any mortgage, they will also look at the value and condition of the property. The exception for a buy-to-let mortgage is that the lender will look at the rental income the property could generate and apply this figure to a calculator.
This is often referred to as the ‘stress test’ in the buy-to-let world. By applying this stress test, the lender can build in a margin of rent that is over and above the mortgage payment.
How much can I borrow for a buy to let mortgage?
How much you can borrow varies from lender to lender like other mortgages do. Part of our job as mortgage consultants is to research the market to ensure you get the most suitable product for you.
But as a general rule of thumb, if you opt for a 5 year (or longer) fixed rate buy-to-let mortgage, the stress test will be more generous than for (say) a two-year fixed rate, so you’ll be able to borrow more.
This is particularly relevant if the lenders valuer has given a lower rental income figure than you were expecting.
Buy-to-let mortgages are generally more expensive than residential mortgages, and the fees charged by the lender can be higher.
With a few exceptions, the amount of deposit required is 25% of the value of the property. The rental income required can be as much as 25% to 45% over and above the mortgage repayment and is often “stress-tested” at a higher rate.
Additionally, if you are a portfolio landlord (defined as a landlord with four or more mortgaged investment properties), a lender will make additional checks on the rest of the portfolio.
Can I get a normal mortgage and rent it out?
No. A normal mortgage (a residential mortgage) is purely lent to you to buy a house for you to live in. A buy-to-let mortgage is for your tenant to live in. Don't get the two mixed up, because it could be construed as mortgage fraud.
Additionally, if a property is insured as a residential property, but the property is tenanted, it will invalidate the insurance cover, too. Every mortgage product is designed for the particular property and use, so please do get the right product to protect you and your tenants.
Is it easy to get a buy-to-let mortgage?
As ever, it depends on your individual circumstances, but assuming you have the correct paperwork and it’s well prepared the there is no reason why applying for a buy-to-let mortgage should be any more difficult than applying for a residential mortgage.
If you’re struggling with an application, please do get in touch with us now.
What income do I need for a buy to let mortgage?
Usually £25,000 pa. Although lenders don't apply a multiple or calculator to this figure, the amount you can borrow is determined by the loan to value and the rental stress test. Some lenders have lower minimum income figures, and some have no minimum income requirement at all.
It's quite usual for buy to let mortgages to be arranged on an interest-only repayment method, as opposed to residential mortgages, where the vast majority are arranged on a capital & interest basis.
What's the difference? Well, if you pay just the interest, you'll still owe the full amount you borrowed when you reach the end of the mortgage term. Whereas if you pay capital and interest, your debt will reduce as you make monthly repayments, so at the end of the mortgage term, you will owe nothing.
If you just pay the interest, your monthly repayment will be lower, and the usual method of repaying the mortgage is to sell the property at the end of the mortgage term. Whether you opt for interest-only or capital & interest is a matter for you, and best discussed with your accountant or tax adviser.
Another matter to discuss with your accountant or tax adviser is whether to apply in your personal name(s) or to form a limited company and make the application through that. A limited company can be set up one day, and you can apply the next. There is no minimum time a company has to be in existence. Your mortgage adviser is not a tax expert, so you must get advice elsewhere. Different lenders have different requirements for the "Nature of Business" category (or SIC code) and your mortgage adviser can let you know which are eligible for when you form the company.
Buy to let mortgages are generally available to clients who already own a property, whether that property is residential or buy to let. So, when you purchase a buy to let property, it will usually be your second (or more) property. That means you'll pay the higher rate of stamp duty, because you are purchasing a second property.
Just a reminder, you must pay tax on any profit you make from renting out property. Some people forget this, but it's important.
This link on the Government website is very useful: https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income
Mortgage Search Go will source you the best buy-to-let mortgage deal available, allowing you to remain competitive in the rental market AND maintain the best possible profit margins.
We can do this because we are not tied to any lender. But above that, and almost as importantly, we will work with you to ensure that any risk has been calculated and measured.
We can also help regarding re-mortgaging of your buy-to-let property.
We’d love to talk more, so please call us on 0844 69 333 60 or click here to contact one of the Mortgage Search Go team for more details.