The Ultimate Guide to UK Buy to Let Mortgages
Are you thinking about taking the plunge and getting in property for the first time? Now you’re probably reading up about buy to let mortgages, seeking mortgage advice and wanting to earn a rental income from property so how do you go about it?
A buy to let mortgage has quite a few noticeable differences when compared with a residential mortgage, so it’s important read up about this.
Will all types of mortgages it’s important to note if you fail to keep up with repayments your property may be repossessed.
The first steps can seem quite daunting but it’s not rocket science. Read on to make sure you to provide you with important information about join the landlords club with minimum fuss, low monthly payments and maximum profit!
Start your property portfolio
When people hear about a property portfolio they often think that’s something that’s beyond their reach. This doesn’t have to be the case though. You can start investing in property at any age (there are some age limits to when a BTL mortgage can end and other restrictions) but in general if you have the cash then you can get started.
Buy to let investors having varying deposits, so find out what position you’re in and get started finding the right buy to let mortgages for you.
What’s a buy to let mortgage?
A buy to let mortgage requires a deposit and can incur a higher interest rate. It’s because mortgage lenders often look for extra security, weighing up the possibility of rental periods in which no tenants were there. It could result in the landlord deferring on his payments of home mortgages.
The rate depends on what type of mortgage you’re getting, what you’re borrowing, and the rent you’re hoping to earn on a property.
How do buy to let mortgages work?
Buy-to-let Mortgages still have the option of a capital repayment or interest-only mortgages. Many investors opt only for interest, which means it only pays back interest each month.
How much can I borrow for a buy to let mortgage?
The amount you can borrow depends on how much you can afford to repay. Your mortgage lender wants to see rental income that is above your payments by 20-30% to cover periods of no rent and for other unexpected costs.
What are interest rates like for a buy-to-let mortgage?
When searching for buy to let mortgages, you want low monthly payments, you’ll notice that there’s some difference between the mortgage rates available which means for some you’ll pay more others you’ll pay less.
Obviously you want to be paying the lowest rate and you’ll find the lowest currently at around 3.5% to 5%.
The rate of interest you will be charged is often based on the Loan To Value number so the bigger deposit you have, the better interest rates you’ll have available to you.
How do I get a buy to let mortgage?
To qualify for a buy to let mortgage, you must meet specific criteria. To get the ball rolling we suggest that you speak with some mortgage experts who can help advise you what exactly needs to be done to get started.
Lenders also usually have an upper age limit for borrowing. Typically, you can’t be over 70 or 75 when the mortgage period ends, so please take this in to account when considering if this type of mortgage is right for you.
It’s always best to speak with multiple people when considering buy to let mortgages, and always seek independent mortgage advice.
How much deposit do I need to have for a BTL mortgage?
The typical deposit amount for a buy to let mortgage starts at 25% of the properties’ value, meaning that for a £100,000 property you should have atleast £25,000 (ideally £30k to account for other fees) ready to be used a deposit.
Providers seek assurance that you will have the money within a month. Some lenders can require at least 40% deposit amounts of up to £200,000 in assets.
Finding the right buy to let mortgage rates
Low interest rates allow you to find some mortgage options for buy to let property. You have to submit at least two forms of credit on a property that you leased.
If you’ve got a standard residential mortgage on the property you wish to let out, you should contact your lender about switching to a landlord’s home mortgage, this will mean it will have a higher interest rate but has to be done.
Who are buy-to-let mortgages for?
Buy to let mortgages are often a good option for people looking to make a significant investment or actively start letting property for the first time. They work differently from traditional Residential mortgages, and you want to check if you qualify and if this type of mortgage is suitable for you.
Plan for times of no rent
There will very likely be ‘voids’ when the property is unoccupied, or rents are not being paid (this can happen).
This is why it’s best to have rental income that is 30% extra what the mortgage payments are. So if the BTL mortgage is 300 per month and the rent being charged is £500 per month you know with two months rent you can pay for the mortgage for three months.
Whereas if the rent was also £300, this makes things much tighter as you’re relying on that money every month for the for seeable future which could leave you stranded if one month the rent has stopped.
Landlord obligations and renting your property
A landlord who wishes to sell a property involves many obligations, including responsibility for the rented property and costs in the long term—those including tenancy agreements, tenancy deposit, and repair and care of the building.
Don’t rely on having to sell the property to pay back the mortgage.
If house prices fall which is always a possibility, you could find yourself in the position where you need to sell the house but you could be taking a loss if you have to sell within a certain time frame.
This is one of the biggest problems with an interest only mortgage. With a repayment mortgage this gives you the added peace of mind that you’re paying off everything.
Yes, they can work out great if you don’t have any problems, but if you do encounter issues, then relying on selling the property to repay the mortgage can cause you several headaches.
What is the difference between buy-to-let mortgage and residential mortgages?
A buy-to-let mortgage typically requires a deposit double the average value of a residential mortgage equivalent. Another big difference is that capital repayment is reversed based only on interest and capital restitution.
This means you only pay interest that is accruing on the loan amount and will not pay back the balance until your term ends. There is also a different set of fees if you get tax credits in exchange for having the house and not being used as a home.
When you’re considering joining a buy-to-let mortgage arrangement, you’ll need to consider these other fees.
Should I get a repayment or interest-only buy-to-let mortgage?
When you have interest-only mortgages, you pay the interest with nothing from your cash. You still need to have a capital account to pay the outstanding debt balance at the end of the term. Each month you also pay the interest in the mortgage. At the end of your payment term, we will return the total balance of the house owing to the seller.
Why can’t I get a residential mortgage and rent out the property?
A mortgage for a home does have a clause stopping someone from renting your property in most circumstances. Usually, lenders do this to differing levels, but they want to confirm that it’s you that’s living in the property.
This is down to several reasons but you’ve got to think that they mortgage lender owns the property too, so if you’re doing buy to let through a residential mortgage there’s more things that can go wrong.
Buy to let mortgages are different to having a residential mortgage. Always check the fine print and seek independent mortgage advice.
You could face legal action if you choose to get a residential mortgage for a buy to let property. Many lenders will be able to provide you with a mortgage for many different circumstances, but you must consult with them to make the right decision about it.
You have to ensure it is the right one for you and consider late release penalties and remortgagment penalties.
How do I remortgage my buy to let?
You may not ever have to make a change on your current mortgage. Instead, you’ve opted for a ‘consent to let’ from the lender. A mortgage can save you money while you rent the property and have no additional payment required. There must be other fees or obligations to consider as a landlord. . If you consider letting the property, you’ll also need to pay their fees.
Capital Gains Tax on investment property sales
If you buy an investment property for profit, you will probably pay CGT if the gain is more than the annual threshold of £12.300 during the tax year 2021-22. You can reduce your CGT bill by deducting stamp duty costs, solicitor and estate agency fees etc., from your own cost of sales of buy-to-let property. Any gain on your self-assessed tax return should be reported in this tax year, and the result of the return will be used to calculate your tax bill.
What tax implications do buy-to-let mortgages have?
Tax allowances for BTL mortgages are now amended. Borrowers now receive 20% credit on their interest payments. Some people choose to establish a limited company, so specialist advice is strongly urged.
What types of mortgage can I take out?
Fixed-rate mortgages offer more stability over short term periods than other types of mortgage for new mortgages. Tracker mortgage has variable rates that track the Bank of England basis rates. More than 60 per cent of households looking for tracker loans will remortgage their mortgage at least once. Another mortgage categories you can think about are track bank mortgages. If the rates go up, you will have to be sure you have the money to cover the rent. The many remortgaant mortgage deals include fixed-rate deals with fixed rates and tracker mortgages with tracking deals.
What happens at the end of my interest-only buy-to-let mortgage?
Because you only pay interest on a buy-to-own deal, you will have to pay back the entire value of your mortgage by the end of your loan. You can extend your mortgage, or you might decide to sell the property.
If the house price falls, you have to pay the rest of your mortgage for yourself. If you wish to sell, you’ll earn a further profit if the price of a house has risen since you took out a mortgage.
What deposit do I need for a buy-to-let mortgage?
Most providers require larger deposits for a sell-to-let mortgage, and it usually is approximately 25% of the value of the property, but your mortgage may require a deposit as large as 40%.
A bigger deposit protects the lender in late payments, usually because of difficulty paying rent. You can save your currency by paying a higher sum of money.
How much does a buy-to-let property cost?
The median value for a buy-to-let property in January 2020 was £565,289. This comparison is with an average of £374,072 for residential movers. Moreover, this indicates prospective landlords are seeking more affordable properties where rental levels provide a decent rate of return average sale price for the house for the buyer.
What’s the difference between buy to let and an investment property?
Sometimes you will hear “rental property” as well as “buy to let”, and these are all the same thing. Another name for a rental property is an investment property or BTL property.
How do I find a buy to let mortgage?
You can do it online; there are many different brokers and lenders on the market. Start by making a shortlist of at least three buys to let mortgages UK companies you like the sound of; check out their sites for some free information. Then ask for quotes with an idea of what you want (e.g. initial rate fix for how long, buy to let costs and fees)
Remember, if you’re using a broker, they will take their fee from your lender, not you, so it’s worth having a shop around as the rate might be slightly different.
Do I need to be 18?
No minimum age is required, but you must have been working in the UK for three years. You’ll need a deposit too: Usually at least 20% of the purchase price (though some allow 5%). And you’ll probably need a good credit record.
What type of property can I buy with a BTL mortgage?
A range of residential properties – flats, houses and conversions – even barn conversions or student properties. You can buy just one place or multiple homes.
What are the benefits of getting a BTL mortgage?
A good investment at times when rental prices are high, and property ownership provides stability, flexibility & choice with monthly cash flow, no landlord rules if you live in an area where letting is complex or expensive, buying yourself means you’ll always have somewhere to live while still having the option of letting your property out If you’re bored of looking after tenants (late payment of rent etc.), it’s nice sometimes to live alone!
Do I need professional help?
There are two options:
1. Do it yourself: read up about BTL mortgages and the costs involved (of course, you will need some money). At first, there is a lot of work to do – finding your property, organising surveys, lawyers etc. You’ll also be doing most of the day-to-day maintenance as well as liaising with tenants and suppliers.
2. Let a BTL company find your property for you: they specialise in knowing where best to invest and what sort of property will be favoured to rent out. They will do all the legwork; obviously, this means a fee, but they should make it back through their commission from your monthly rent.
What are the costs involved with buy to let mortgages UK?
– Your upfront mortgage fees which cover valuations and legal work – Monthly interest payments on your mortgage – Landlord insurance (protects you in the event of damage or theft) –
Buyer’s agency fees if you use an agent to help find your property – Letting agency fees for finding tenants and collecting rents.
What are the positives and negatives of buy to let mortgages?
Pros: Higher returns than current savings accounts (though this varies between lenders) Can borrow up to 75% of the property purchase price Tax relief on your mortgage interest payments
Steady rental income
Cons: You need at least a 10% deposit – What happens if my tenant doesn’t pay me? If it’s an ‘assured shorthold tenancy agreement’, you can use section 8 to take possession. Section 8 is usually used for non-payment of rent, but you can also issue proceedings for damage or other breaches in your contract.
Failure to pay can also be the reason for eviction, so get advice if the worst happens.
How do I get a buy to let mortgages in the UK?
1. You need to have a sizeable deposit, at least 25% for most lenders.
2. The rest you borrow from the bank or building society
3. Your buy to let mortgage company arranges your insurance and manages your property for you
Can I use inherited money to buy another home (like a buy-to-let) with it?
Inheritances can be used as part of a deposit but not the whole thing – it depends on the lender’s criteria.
If you inherit £75k, about half could go towards a deposit; if you inherit £150k, then up to 70%. It’s best to use an inheritance to pay off existing debts like credit cards or personal loans rather than adding to them!
What are the risks associated with a buy to let mortgage?
There are a few things you need to be aware of:
Interest-only loans have higher rates as they’re considered riskier, so you should try and pay off more than the minimum each month. For example if your rental income is £500 and your interest only mortgage is £150 per month, ideally you should use some of that to help reduce the mortgage down.
If not, your mortgage could end up costing more than your home’s value. – You need to factor in maintenance costs for existing properties. Trying to estimate how much it will be is an inexact process – especially if you choose a ‘character property that needs lots of DIY! –
The housing market might be down when it comes time for you to sell or rent out your property – this would mean you would have to sell at a loss, even if the mortgage repayment is manageable.
Always look in to the extra costs that might be associated with buy to let mortgages, you don’t want to be getting stung later on down the line.
How many BTL mortgages can you have?
This depends on the lender but is usually no more than two buy to let mortgages per person. If you’re married, a joint application with your spouse is acceptable. If they have a poor credit history, most will want to see that it’s been turned around before lending.
How to apply for a BTL mortgage?
1) Find an excellent buy-to-let mortgage broker
2) Use their application forms and check for bank statements, proof of employment etc.
3) Make sure you have proof of deposit with either the current account or savings being transferred from when buying your property
4) You’ll need proof of income which can be PAYE in the last three months, with a letter from your employer confirming this
5) You’ll also need a good credit score – aim for at least 700+
How long does the process take?
It should be as quick as possible – it shouldn’t take longer than three weeks if all your documents are in order and there aren’t any problems. It’s best to start the mortgage application process as early as possible so you can secure the lowest rates and most extended terms.
You may also want to look into remortgaging after 12 months if rates have dropped significantly and you’re confident that they’ll continue to do so.
Who is the best buy to let mortgage lenders in the UK?
Comparing mortgage rates from the biggest companies is the first step to building your property portfoilo. Compare mortgages with an interest only basis vs repayment mortgages to see what’s right for you.
Barclays buy to let mortgages are
Also worth looking at, particularly if you’re looking for an offset deal.
They specialise in BTL mortgages and remortgages. Even if you’ve had credit problems or defaults, they can help.
Even if you live outside of the Leeds area, they provide all types of mortgages Nationwide, so visit their site to see how they can help you.
HSBC currently offer some of the best buys to let mortgages around, as well as great rates. They also do not charge any arrangement fees and have a 20% transfer up.
Barclays offer three types of remortgage; discounted variable, discount fixed and trackers – all subject to status and lending criteria.
Not only do Santander currently offer one of the best buys to let mortgage rates available to homeowners & non-homeowners accepted, but they also offer “Money-can’t-buy” experiences such as meeting the England Women’s Hockey Team and getting up close to some of Santander’s sponsored athletes. They currently have three different buys to let mortgage plans: Trackers, Discounts and One-year fixed-rate mortgages available.
Can I get a buy to let mortgage on new-build properties?
Yes! Many lenders offer to buy to let mortgages on brand new homes, and they can give you competitive interest rates for this type of property. If the house is rented out fully furnished, then they will be happy to lend more than 70% in some cases.
I’m currently co-renting with someone else – can I take out a buy to let mortgage?
Yes, splitting the deposit with the person who lives with you should mean that your lender will accept it. You may get a joint application but talk to your chosen lender first about how best to do this. Also, make sure that they’re on the deeds of the property as well as the mortgage.
Do I need to be a first-time buyer?
No, you can have as many buy-to-let mortgages as you want if you’ve had previous experience and a good credit history. You’ll have to prove where the money came from, so getting an ‘earner’ preapproved by a lender before shopping around for properties is advisable.
How does remortgaging work with buy to let mortgages? You can always remortgage at any time using another broker – remember that rates will have changed, so factor this into your cost calculations.
You may also find that lenders won’t allow you 100% cashback on your remortgage and instead will only offer a percentage of the value. If you want to remortgage and keep your current lender, then most will charge a fee for this – it’s best to ask them at their ‘pre-application stage, so you’re not caught out by anything unexpected.
Will my buy-to-let mortgage affect my credit score?
Yes, though most will factor this into their calculations when deciding whether or not to offer you finance.
If they can see that you’ve got previous experience as a landlord and with repaying debts, they’ll be able to assess whether or not this will impact its affordability scoring. I recommend checking your credit history before looking for a property and also when you’re applying for your buy-to-let mortgage so that any problems can be spotted early on and dealt with quickly.
Do I need buy-to-let insurance? If you’re a professional landlord and have three or more properties, then it’s compulsory, but it’s always going to be an intelligent decision to take out an insurance policy.
There are dozens of providers, and quotes vary widely, so shop around for the best deal.
Remember that your mortgage lender will require proof of the policy before lending the money.
Are they tax-deductible?
Although a buy to let mortgage may not be fully tax-deductible, you should still get some tax relief on your pay interest. Most mortgage providers deduct any interest repayments on your mortgage before tax is calculated, and this will affect how much of your mortgage can be removed. At the same time, some choose to add it back onto your loan after you’ve sorted the tax (in which case it’s included in your remaining taxable income). I recommend you ask your lender or accountant for clarification if you’re unsure.
Can you switch?
If you’re not happy with your current deal on your buy-to-let deal, then it could be worth looking around for a new one; even if you’re planning to sell, remortgage and then transfer the property into the buyer’s name (more information here:
Are they available to foreigners.
Brits aren’t the only ones who can buy property in the UK; other EU citizens can buy properties too, although there are some limitations (for example, you must not live in the property as your main home).
If you’re looking to purchase a buy-to-let, then you’ll need to make sure that your lender is willing to accept a non-UK resident as a borrower.
Can I pay it off early?
Yes, though most providers charge an early repayment fee for withdrawing funds (usually the same as their arrangement fee).
Some providers can allow you to pay off up to 20% of your initial loan without paying an early repayment fee, but it’s best to enquire with them directly to check if this applies in your case.
Do remember, though, that this will increase the term of your mortgage, so factor that into your calculations when deciding whether to pay it off or not.
Taking the plunge in to property is always going to be a nerve racking one with lots of important information to take in and there’s definitely a learning curve to becoming a property master.
But if you follow sensible guidance and get any property thoroughly checked out before investing, do you’re research then you’re journey to creating a rental income should be able to avoid any horror stories. We wish you luck with your mortgage application.
Only mortgage if you’re confident you can repay it. Your property could be repossessed if you fail to keep up with payments.
Fixed rate mortgages vs variable rate mortgages
If the Bank of England decides to increase interest rates this will have a direct affect on the cost of your monthly mortgage repayments if you’re on a variable mortgage.
Whereas a fixed mortgage is “fixed” generally for a period of one to three, or five years. You can also find rates which are fixed for even longer, giving you greater piece of mind.
Should I buy a property with family members?
Investing with family can be beneficial as it means you have a greater buying power but it also means that there’s potentially more thing to go wrong.
One method when buying with family is to create a limited company to buy the property through which comes with several advantages and a few disadvantages, it’s all about figuring what’s right for you and your circumstances.
How much stamp duty to pay?
Like with residential property the amount of stamp duty you will pay depends on the price.
|Portion of property price (England and NI)||Buy to let stamp duty rate|
|£925,001 – £1.500,000||13%|
Finding properties to invest in
You want to scour the rental property market in the areas you’re looking to buy in. Look at what current rental yields are like, what type of tenants and what capital appreciation has been like and what the areas plans are in general for redevelopment and get a gauge of what’s available to you.
Once you know what property you’re after you can start searching for the perfect mortgage deal.
What mortgage term is best?
This depends on what is affordable to you. The mortgage term will directly affect your monthly payment and your projected rental income.
Check with individual lenders to see which is the best term for you.
Finding a buy to let mortgage specialist
There’s many businesses out there who specialise in buy to let mortgages. You want to find one who’s renowned for providing a quality service