If you plan to make an investment in a property that you can rent out – and you need a mortgage – here’s a simple guide to getting a buy-to-let mortgage…
Am I eligible for a Buy to Let Mortgage?
Whilst most properties are mortgageable, many more lenders are available if you can match one or more of the following criteria:
- If you will be older than 75 or 80 when the mortgage ends, some lenders will not be willing to lend to you
- Most lenders like borrowers to own a home already – whether it is mortgaged, or you own it outright
- The majority of lenders need you to have a good credit record
- Whilst some lenders do not demand you have independent earnings, most require you to be earning at least £25,000 a year, whether employed or self-employed
Once you’ve positively ticked some of the statements above then its time to consider what buy-to-let products might be available to you.
What you should know about buy-to-let mortgages:
- Interest rates and fees tend to be higher than for residential mortgages
- You’ll generally need a 25% deposit (and potentially higher)
- Most buy-to-let mortgages can be arranged on an interest only basis – but this means you are not paying off any of the capital over the mortgage term – only the interest. Once the mortgage ends you will need to pay back the entire cost of the original loan. It is possible to arrange repayment BTL mortgages
How much can I borrow?
Unlike a residential mortgage, which is calculated based on your earned income, lenders will normally only look at the amount of rental income you expect to be receiving.
As a general guide, they will be expecting the income to be around twice the mortgage payment on an interest only basis.
You’ll need to do some investigating – checking properties to rent online and through your local letting agents to gauge what sort of figures you are looking at.
Who will lend on a buy-to-let mortgage?
Most of the big high street lenders offer some products – and there are also some specialist lenders. It’s worth talking to an independent mortgage broker to get some advice and help when choosing the right deal for you.
Most lending on buy-to-let mortgages is not regulated by the Financial Conduct Authority (FCA) – unless you’re going to let the property to a close family member – a spouse maybe, or a grandchild at university. In these circumstances, you will need a consumer buy-to-let mortgage, which has the same affordability restrictions as a residential mortgage.
However, anyone who advises, or arranges, or lends and administers a buy-to-let mortgage is covered under the laws that apply to residential mortgages and will be regulated by the Financial Conduct Authority (FCA). Again, it’s worth talking to an independent mortgage broker to get some advice and help when choosing the right deal for you.
What else do I need to know?
Make sure you have a contingency plan for any time when there is no rent coming in – between tenants for instance, or if a tenant doesn’t pay. You will need some savings to cover this – savvy landlords will put away a proportion of the rent into a savings account to cover these eventualities. You also need to factor in any maintenance costs – if a boiler breaks down, for instance.
Also, be aware that you will be liable to pay income tax on your rental income (minus any expenses for maintenance, letting agent fees and so on), and be liable for Capital Gains Tax on any profit made when you sell the property.
If you would like to discuss buy-to-let mortgages, or any other financial matters, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.