Buy to Let (BTL) is a financial strategy with a number of benefits. We currently have a strong rental market in the UK, and property remains a relatively safe long term investment and a real alternative to having money sitting in a poorly performing savings account. In addition, you can generate an income to cover the monthly mortgage repayments.
It’s a complex decision, and one of the most important considerations is securing the best deal on a buy to let mortgage to meet your individual needs. A specialist mortgage broker will help to achieve the right mortgage for you.
Why use a mortgage broker to arrange a Buy to Let mortgage?
Lending criteria are particularly complex in the buy to let market, and it’s estimated that 75% of these specialist mortgage products are now arranged through brokers.*
Mortgage advisers will research individual lenders and rates on your behalf, and identify the right options for you. They will put together the application package with the lender and secure the most favourable terms
At Mortgage360, we provide specialist mortgage advice, with in-depth knowledge of the lenders with the right products on offer. From our first conversation through to the completion of your property, we will provide you with advice and guidance to secure the right mortgage for you.
We’ll help you navigate the risks related to your specific circumstances and make sure you understand the implications of your buy to let mortgage completely, giving your property investment every chance of being a success in the future.
* Source: Moneyfacts. 4 June 2019.
What is a Buy to Let mortgage?
A Buy to Let (BTL) mortgage is essential if you are looking to purchase an additional property to rent out to tenants and require a mortgage to make this purchase.
Buy to let mortgages have some similarities with standard residential mortgages, but differ in important aspects. The rules governing these mortgages are different, with fees, deposits and interest rates usually higher.
Most BTL mortgages are structured on an interest-only basis, which means all you pay is the mortgage interest on a monthly basis, without repaying any capital. So when the mortgage term completes, you still need to repay the loan in full.
Am I eligible for a BTL mortgage deal?
Buy to Let mortgages are usually considered higher risk than regular mortgages, so the qualifying stipulations are more complex and will typically differ from lender to lender. Some lenders require buy to let applicants to own their own homes already. Your credit record will be closely scrutinised and affordability will be assessed, with other borrowings taken into account.
In addition, the typical Loan To Value (LTV) ratio is capped at 75-80% with most lenders, meaning a minimum deposit amount of 20-25% is often required. Lenders will also want to ascertain that rental income from the property will more than cover the mortgage payments, typically requiring the rental income to cover higher ‘stress-tested’ rates of interest than what is initially charged on the mortgage.
Income
Many mortgage lenders will require you to provide documentation to back up evidence of personal income, employment income or self-employment income. If this is less than £25,000 per year, it will be more difficult to secure a buy to let mortgage.
Age
The age limit for eligibility for a buy to let mortgage is usually 75 at the point of applying, although some specialist lenders will apply higher age limits.
Type of property
For most lenders, traditionally existing let properties provide the best guarantee of a buy to let mortgage. Rental yield (how much you will earn in rental income compared to the cost of the property) is also an important consideration.
Research suggests that two bedroom properties offer the best rental yield, for mainstream buy to let, both houses and apartments. Many lenders will not consider buy to let mortgages on high rise blocks, and will have a specification as to how many storeys are acceptable. Your mortgage broker will advise you on this.
What’s the intended use?
Do you plan to let it to individuals and families, or will it be a House of Multiple Occupation (HMO)? This may affect your application. Some HMO’s must be licensed by local authorities, and this could necessitate additional planning which should be in place before you apply for your mortgage.
What kind of deposit will I need?
The minimum deposit mortgage lenders will consider for a buy to let mortgage is generally 25% of the property’s value, but can be as low as 20% or as high as 40%, dependent upon the lender’s own rules. Lower deposits can sometimes be negotiated if you have other properties you can borrow against.
In terms of Loan to Value (LTV), most UK lenders fall into the 75-80% bracket. For flats and new builds, you’ll probably need a larger deposit still.
What are the potential costs involved?
– Legal Costs
The legal process (conveyancing) for buy to let mortgages differs from a residential mortgage and may entail additional checks and fees, so legal costs need to be taken into consideration.
– Stamp Duty
Buy to let properties bought in the UK as second homes attract a 3% additional stamp duty surcharge, introduced in 2015 to attempt to take the heat out of a booming buy to let property market which favoured property investors and was seen to be excluding families who couldn’t afford to buy their own homes.
This will not affect the property you already own as your main home. You will pay the additional 3% on properties worth more than £40,000, if this purchase means you own more than one property.
– Mortgage Costs
Mortgage costs will typically include arrangement/product fees, valuation fees and conveyancing costs.
– Broker Fees
Research shows that 75% of buy to let mortgages are arranged through a broker*, which underlines the added complexity of this type of loan. As specialist advisors, Mortgage360 will search the market for the most suitable and competitive mortgage, and charge a flat fee for buy to let mortgage advice and support.
* Source: Moneyfacts. 4 June 2019.
– Arrangement Fees
Averaging around £1,500, the buy to let arrangement fee will secure your mortgage and cover all administrative costs for approving and setting this up. The actual amount charged by your mortgage lender can vary, dependent on the type of property and mortgage size. It can be added to the mortgage borrowing, but that means you will be paying interest on it over the entire term of the mortgage, so upfront payment will be cheaper in the end, where possible.
– Valuation Fees
Your lender may charge a valuation fee for checking the value of your chosen property matches your application and LTV requirements. This may be charged on a sliding scale basis, dependent upon the value of the property.
– Exit Fees / Early Repayment Charges
Mortgage360 will also ensure you are aware of fees associated with making overpayments or paying off part, or all of your mortgage.
Ongoing commitments
There are many other commitments involved in buy to let, when you are considering whether this is right for you. If you are managing the property yourself, you will need to ensure your rental properties are compliant with all rules and regulations, vet tenants, handle necessary repairs and maintenance as well as ensure the rent is paid to safeguard your investment.
You could choose to employ a letting agent to manage the property, which means they will manage compliance issues for you and avoid the possibility of fines in an ever-changing arena. If you don’t live locally to your buy to let property, it can be easier and even cheaper to employ a professional letting agent.
Explore BTL property options with Mortgage360
With so many options and pitfalls, expert advice from qualified mortgage advisors is vital. Just fill in the form to arrange an initial consultation to see if buy to let is right for you, and how Mortgage360 could help move your plans forward, identifying the right mortgage deals.
