The step-by-step mortgage application process
Buying a home is one of the most significant financial decisions you’ll ever make. For most people, it involves securing
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What is a buy-to-let mortgage?
A buy-to-let (BTL) mortgage is specifically designed for landlords purchasing properties to rent out. Unlike residential mortgages, buy-to-let loans consider rental income as the primary source of repayment. While profits from buy-to-let investments dipped during periods of high interest rates, the market has seen renewed interest as banks consider landlords to be relatively low-risk borrowers due to their steady rental income streams.
What are the criteria for a buy-to-let mortgage?
To secure a buy-to-let mortgage, there are specific eligibility criteria that lenders typically require. Borrowers are often expected to:
- Be at least 25 years old
- Have a minimum annual income of £25,000 (excluding rental income)
- Own their own residential property (although this isn’t always mandatory)
- Have a good credit history and stable financial background
Lenders may also limit borrowers to owning a small portfolio, often restricting the number of buy-to-let properties or setting a maximum total loan amount. Additionally, the rental income from the property must usually be at least 125% of the mortgage repayments.
What is the best BTL mortgage for me?
There are limited options for buy-to-let mortgages so research is necessary to find the best deal for you.
The procedure is very different to normal mortgages. With BTL mortgages, banks have more control over their decisions as these are not controlled by the Financial Services Authority (FSA), which set strict rules for regular mortgages.
Finding the best buy-to-let mortgage will require the borrower to be the subject of a full credit history check, and provide evidence of financial commitments and income, although employment income is not as important a part. Any assets owned may work in your favour.
Making buy-to-let pay off
To maximise your investment, you’ll need to carefully plan and manage your property. A good idea is to start by choosing a property in a desirable location with strong rental demand, such as areas with good schools, transport links, and amenities. Calculate your expected rental yield and factor in costs such as maintenance, insurance, and potential periods of vacancy.
Additionally, consider whether you’ll handle repairs yourself or hire a property manager. Landlord insurance and regular maintenance can help protect your investment and ensure long-term profitability.
How much can I get on a BTL?
For a normal mortgage, a borrower can usually get up to 4.5 times their annual salary if single, or 3 times a joint annual salary. This is not used to determine the amount that can be borrowed under a BTL mortgage.
The lender will take into account the amount of deposit available, the financial history of the borrower, any other assets owned and the likely return to be made on the property to be purchased. Also, the lender will usually insist on the monthly rent being 125% of the mortgage repayment.
What to consider before choosing a buy-to-let mortgage
Affordability
Ensure you can cover repayments during periods when the property may not be rented out.
Additional costs
Factor in expenses such as maintenance, insurance, and potential stamp duty.
Rental yield
Calculate the potential income compared to your mortgage repayments.
Loan type
Decide between fixed-rate, tracker, or interest-only mortgages based on your financial goals.
Long-term strategy
Think about whether the property is a short-term investment or part of a longer-term portfolio.
Finding the right BTL property
With BTL, finding the right property is important too. Consideration needs to be given to the type of property, the area and the target tenants. BTL mortgages have different criteria for the borrower. Normally they should be 25 years or older and have a minimum income of £25,000. It is unusual to be allowed to have in excess of three BTL loans and there will usually be a maximum total amount of loans in any event.
Remember, take the time and effort to carry out thorough research on the BTL market, and any benefits and risks before starting on this journey. Research the area before buying property, looking at good transport links, good schools and what the likely target tenant will be for an area. Take the time to do sufficient homework in terms of the cost of the property, the rental yield and affordability. Consider how near you are to the property for maintenance purposes and how skilled you are in dealing with repairs.
What are the different types of mortgage rates?
Options on mortgages include the regular fixed rate, tracker etc but a popular option in BTL is the interest only mortgage. Most BTL interest only mortgages allow the borrower to pay up to 10% off the overall mortgage balance in each year. Therefore, although not contractually obliged to, the borrower can pay extra and reduce the mortgage debt.
Interest only repayments are normally lower, because at the end, the debt under the mortgage still has to be paid back. If the borrower can financially afford to pay more, the debt is reducing, but if for some months, say for example the property is not rented out, then they are only obliged to pay a smaller repayment.
FAQ
Need more help?
How much deposit do I need?
Lenders on BTL mortgages normally like a minimum of 25% deposit. However, some of the best buy-to-let mortgage deals insist on 40%. This is why it is important when researching the best buy-to-let mortgages that all information is taken into account and time is given up to compare options, study quotes and be fully aware of what is on offer.
Are there additional costs?
When doing the maths for the BTL mortgage, consideration should also be given to the additional costs that come with BTL. Take into account building maintenance, repairs, building insurance, landlord insurance and content insurance. Also, even though the buyer will not be living in the property, if the property purchase price is high enough to warrant stamp duty, then this will have to be paid.
What type of buy-to-let properties can I get a mortgage for?
Most UK lenders offer mortgages for residential properties like houses, flats, and new builds. However, certain properties like HMOs (Houses in Multiple Occupation), holiday lets, or properties above commercial premises may require specialist lenders. The property must meet basic standards for habitation and typically needs an Energy Performance Certificate (EPC) rating of E or above.
How is rental income assessed for a buy-to-let mortgage?
Lenders usually require the projected monthly rental income to cover 125-145% of your mortgage payments. This is called the rental coverage ratio. For example, if your monthly mortgage payment is £800, you’ll typically need to demonstrate potential rental income of £1,000-£1,160. Most lenders will require an independent RICS surveyor or local letting agent to verify the expected rental income.
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