Buy-to-Let Mortgage Advice
Buy-to-Let Mortgages; The basics explained
If you are buying a property to let to tenants, then you will usually need a buy-to-let mortgage and this is typically the case where you are letting a property you already own.
Many buy-to-let lenders do not offer products directly to consumers due to the additional complexity so using a broker like ourselves will help you access a broader choice of products.
The amount you can borrow isn't usually linked to your income, but the potential rental income from the home and its ratio to the borrowing amount usually referred to as “rental cover”.
The deposit requirements are greater than normal residential mortgages, with a current minimum of 15% deposit although this can often be higher where the rental cover is low.
Interest rates will likely be higher than comparable residential loans, but the terms can be quite close for the lower risk buy-to-let properties.
Buy-to-Let; Key criteria
- No minimum required – although some income is necessary
- A minimum deposit of 15% for purchase – see exceptions below
- A minimum deposit of 15% for re-mortgage – see exceptions below
- Maximum age – Not limited
- Maximum advance – Up to £3 Million at 60% loan to value
- Maximum advance – Up to £2 Million at 75% loan to value
- Maximum advance – Up to £1.5 Million at 80% loan to value
- Products available for first-time buyers
- We can help where you intend to let to a family member
Correct as at 01/02/2020
Buy-to-let; Our mortgage advice service key points
- Typically no advice fee for Remortgage applications
- Advice fee of £299 paid only at full mortgage offer for purchase applications
- We are whole-of-market advisors
- We handle the full application and all documents
- Access to lenders that do not deal direct to consumers
- Fully online service
- All documents shared via encrypted systems
- Out of hours calls
How buy-to-let mortgages differ to residential loans
Firstly it’s considered normal on buy-to-let investments to take an interest-only mortgage although it is acceptable to arrange a repayment mortgage instead.
This is to enable landlords to rapidly save further deposits and expand their portfolio at a faster rate.
Maximum loan amounts are usually based on the “rental coverage” and this can mean that even large buy-to-let loans can be covered by a modest income.
Taking a term that extends beyond retirement age is also far less complex and troublesome than it may be on a residential mortgage.
Property requirements are more restrictive though, as discussed below, and minimum valuations and purchase prices are far more common with buy-to-let lenders, most of whom will not consider a purchase price below £50k.
You also have the option of owning the property in the name of a company, or personally (see our LTD company BTL page here). Many important implications stem from this choice so good advice is really important when making that decision.
Buy-to-let property requirements
There are more restrictions around the subject property when arranging buy-to-let mortgages and these can catch out many investors.
Firstly, the property must be considered “lettable”. In contrast to only being “habitable” for normal mortgages. In practice this just means the condition must be higher, especially to get the best rates.
For example, a property that looks like a 60’s show home inside but is generally in good condition is unlikely to present a problem for normal loans but may well be declined with the competitive end of the buy-to-let market.
Other factors will also be stressed further, so issues like nearby commercial premises, damp and timber complaints, old or defective electrical installations or unfavourable lease conditions will all be scrutinised more on a buy-to-let application.
So care needs to be taken when selecting a lender for a buy-to-let property to ensure that costly mistakes are avoided, an advisor like us can help you make sure you approach the right lenders from the outset.
Typical tenancy requirements
The type of intended tenancy is also a key factor in buy-to-let applications. Most lenders intend for you to let to non-family members, as a single household (i.e. a normal family, or two friends perhaps but under one tenancy agreement).
They would usually expect an “assured shorthold tenancy agreement” or AST to be in place. AST’s are the typical tenancy agreement you might be familiar with, granted for between 6-12 months and then either entering a rolling one-month renewal period or requiring renewal in full upon the end of the initial period.
Longer tenancy agreements, over 12-months which are common with “corporate tenants” are not usually suitable and special consideration would need to be given to the choice of lender if this type of tenancy exists.
Holiday letting, such as Air BnB would also not be suitable for normal buy-to-let lenders and special products exist for this type of arrangement.
Extra care is also needed where the property is in an area common to student letting, or if you intend to use multiple tenancy agreements, such as in a house share.
Houses of multiple occupation or HMO properties
As well as having more requirements about the general condition and the locality of the property there is an additional aspect in buy-to-let properties known as houses of multiple occupation or HMO properties.
This applies when you let a property to non-related tenants e.g. a house-share or student-lets etc. Additional regulation and requirements for these properties may also mean the mortgage needs to be a specific “HMO” product.
Portfolio Landlords & consumer buy-to-let
If you own 4 or more buy to let properties (which include individual flats mortgaged as a block) or if you are an “accidental landlord” such as someone who is letting a property for a short period due to a dip in the market or to break a chain then further specialist rules may apply and some lenders will not be suitable.
Many large mainstream lenders do not cater to either portfolio landlords or consumer buy to let arrangements so care needs to be taken by your adviser to make sure any potential lender is suitable given your scenario.
Letting or capital raising against a property you already own
When you want to let a property you own that has an existing residential mortgage on it already there will be a range of other issues to consider such as early repayment penalties on your existing mortgage, whether consent to let is suitable and what your intended living situation will be.
If you want to buy a new main residence and convert the old one to a buy to let, then this is called a “let to buy”. See more information about these here.
In this situation, we will consider whether it is best financially to “port” the existing mortgage and avoid any early repayment penalties, whether the lender can grant temporary consent to lease if this is a suitable alternative and which way forward is the best value.
If you want to let your property but move into a rental property for example, then porting would not be an option and care is needed to make sure any new lender will be able to consider the situation and this is again an area we can advise on.