What is a buy to let mortgage?
The definition of a buy to let property (sometimes referred to as 'buy to rent' or 'BTL') is a type of property investment, in which the investor becomes a landlord and rents out the property hopefully for a profit. A buy to let mortgage is a loan secured against one of these properties.
Like any form of investment, there's a lot to consider before you can make the jump (and hopefully start making some money) so if you're a first-time buyer of a buy to let property, this page should help you get things started.
Do I need a buy to let mortgage to rent out a property?
Yes (unless of course you're a cash buyer and don't need a mortgage at all). It's a special type of mortgage based on the fact that you will not be the permanent resident, and so is assessed differently to a normal mortgage. Unlike a residential mortgage, where how much you can borrow is based on your own income (among other things), a buy to let mortgage is assessed based on how much rent the property can generate.
What is the difference between a buy to let mortgage and a standard mortgage?
A buy to let mortgage differs from its residential counterpart in that it is largely assessed on the property's profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than on your own personal financial circumstances. That said, many buy to let lenders will require you to have a minimum salary, typically £20,000 or £25,000. Once approved, your buy to let mortgage enables you to rent out the property to tenants, whereas you cannot do this with a residential mortgage.
Other notable differences include:
Interest rates It's common for the interest rates on buy-to-let mortgages to be higher than residential mortgage rates.
Deposit and property value The minimum deposit you need to put down for a buy to let mortgage is higher than it is for a normal residential loan. Typically, you will be required to cover at least 20% of the property value yourself on a BTL mortgage.
Arrangement fees Arrangement fees on a BTL mortgage can be higher than on a conventional mortgage. You may also come across more arrangement fees that are calculated as a percentage of the amount you're borrowing, rather than just a flat fee. It is also common for conveyancing costs to be slightly higher for a rental property.
Can I rent out my current home?
If you're moving home, you may be interested in keeping your current home and transforming into a property to let – a process sometimes referred to as let to buy.
If you decide to move out of the property you're currently living in and intend to rent it out, you'll need a buy to let mortgage. One option is to ask your current lender for their consent to let the property out, which might involve switching your mortgage to a buy to let rate – not all lenders will allow this. Alternatively, you can remortgage to a new lender on a buy to let deal. If you plan to stick with your current lender, you must inform them that you intend to let your home – failure to do so could mean a serious breach of contract.
If you need to release some equity from your current home to fund a new purchase, you can do so during the remortgage process – provided of course that you have sufficient equity and satisfy the lender's criteria.
Should you take responsibility to accommodate a tenant, you also need to ensure certain things are in place like landlords insurance – and you will inherit many more obligations as a landlord.
Can we help?
Are you thinking of buying your first buy to let property, or adding to your current portfolio? Do you already have a buy to let mortgage and are looking to switch to a better deal? Contact our expert advisers today!
The 4 step process of getting a buy to let mortgage
1. Do some initial research on the type of property you want to buy and the area you want to buy in
2. Think about your budget including how much you deposit you can put down and how much rent you might be able to earn. Look for comparable properties in the area that are rented out, to give you a realistic idea of the achievable rental income.
3. You want the Perfect Mortgage for your Buy to Let property and we make finding mortgages easy. Help to find the right mortgage for you is only a phone call away. Call us now or contact us to arrange an appointment!
4. Then all you need to do is discuss the details with us, and make a decision about whether or not you want to proceed. There's no obligation to proceed.
Once you’re happy with our advice, we'll also help you apply for and set up your new mortgage, saving you time and hassle.