Buy to Let

Fee Free Mortgage Advice

Buy to Let

Whether you are becoming a landlord for the first time or you’re looking to expand an existing portfolio you will need to take out a buy to let mortgage rather than a standard residential mortgage.

What is a buy to let mortgage?

A buy to let (BTL) mortgage is specifically for people who are buying a property, or looking to move out of their current home, and to rent out to a tenant or tenants.

What level of deposit is required?

Whilst some residential mortgages are available with just a 5% deposit, BTL mortgages typically require a minimum 25% deposit, with access to the market leading products typically available with a 40% deposit.

Buy to Let

Regardless of whether you are a first time landlord or have a large portfolio of properties, obtaining a buy to let mortgage can be complex and confusing. Lenders have varying criteria and rules, and ensuring you tick every box can be a nightmare. Fortunately, our advisers have a wealth of experience in buy to let mortgages having advised in this area for many years and owned their own buy to let properties as well.

We’ve included some of our most frequently asked questions below:

What is a buy to let mortgage?

A buy to let (BTL) mortgage is specifically for people who are buying a property, or looking to move out of their current home, and to rent out to a tenant or tenants.

What level of deposit is required?

Whilst some residential mortgages are available with just a 5% deposit, BTL mortgages typically require a minimum 25% deposit, with access to the market leading products typically available with a 40% deposit.

We usually find with most mortgage lenders that the greater your deposit the better the product will be.

How much can I borrow?

How much you are able to borrow is typically driven by the rental income you expect to receive from the property, rather than your personal income.

There is no ‘one size fits all’ approach to the calculations lenders use to determine what they can lend on a BTL, however one of the more commonly used calculations by banks to determine affordability is as follows:

You take the amount you wish to borrow, multiply this by 145%, then multiply by 5.5%, and then divide by 12 to give you the required monthly rental income.

For example, Michael is looking to purchase a property for £300,000. He has a 25% deposit (£75,000), so would like to borrow £225,000.

£225,000 x 145% x 5.5% = £17,943 (this is the annual rent required).

£17,943 divided by 12 is £1495. This is the monthly rental income the property would need to achieve for the bank to lend £225,000.

This is just one example but is a commonly used calculation by lenders. The exact amount of rental income required could be higher or lower, and will vary depending on the level of your deposit, your own personal circumstances, what tax rate threshold you pay on your personal income, the expected rental income from the property and even the type of product you apply for.

How is the rental income determined when purchasing a property?

As part of your mortgage application, the lender will arrange for a valuation to take place on the property.

Once the surveyor has visited the property, they will also include in their report an estimate of the monthly rental income they feel the property will generate. This estimate will take into account many factors including location, transport links, desirability of the area and the general demand of this type of property in the rental market.

The lender will use this rental income estimate to form part of their lending decision on your application.

Can I use my own personal income to make up any rental income shortfalls?

The short answer is yes, this can be possible, but only a few lenders will actually consider doing this as part of your application.

The exact term for this is called ‘Top Slicing,’ and is where banks allow you to use your own disposable income to cover the shortfall between the rental income you receive, and the rental income the bank requires.

The actual calculations lenders use are too complex to explain, however this is certainly something our experts will research into where there is an expected shortfall in the rental income.

Top Slicing is only available to customers who are not classed as a portfolio landlord.

What is a portfolio landlord?

A portfolio landlord is someone who owns four or more Buy to Let properties upon completion of the new mortgage application (your own residential mortgage does not count towards this number).

Lenders will assess applications from portfolio landlords differently. Not only will they assess the property you are purchasing, but they are also required to fully assess your entire portfolio of properties as part of their underwriting process on your application.

They will apply certain affordability calculations to your portfolio, taking into account your total aggregate mortgage debt, your rental income and overall Loan to Value of your portfolio. These will need to fit the lenders tight criteria before they can approve your new application.

Ensuring you receive expert advice is absolutely critical where you are classed as a portfolio landlord.

Should I take out an interest only or repayment mortgage?

It is more common for BTL investors to take out interest only mortgages. The reasons behind this is you have lower monthly outgoings so you can benefit from surplus rental income each month and greater flexibility on your mortgage payments. However please be aware with interest only mortgages you are only paying the interest each month, and you will still owe the full original mortgage amount at the end of the term.

For this reason, repayment mortgages can also be popular on a BTL basis, to ensure you have the security of knowing the debt will be repaid by the end of the mortgage term. This route is often popular for people who wish to use their investment properties to supplement their income into retirement.

What are the tax implications of buy to let mortgages?

Tax allowances on BTL mortgages use to be very generous, however this all changed just a few years ago. Ensuring you pay the correct tax on your investment properties is vital, and as we are not tax advisers we highly encourage you to speak to a professional in this area.

Should I purchase the property through a Limited Company?

This is a very common question we get asked. High street banks do not offer mortgages under this type of structure, so we need to approach some of the more specialist lenders in the BTL market.

The interest rates are often higher than purchasing in a personal name, as can be the set up / arrangement fees associated with these products.

However, there are certain tax advantages to purchase through a Limited Company, especially if you intend to purchase more than one investment home.

Whilst we can certainly talk you through the different mortgage options in both a personal name and Limited Company Structure, only a property tax expert can advise you the most tax efficient route to take.

*The Financial Conduct Authority do not regulate some buy to let mortgages.

CONTACT US