Buy to Let Mortgages

What is a Buy to Let mortgage and how do they work?

A Buy to Let mortgage is basically for somebody who wants to buy a property to rent out to somebody. It’s for you not to live in. That’s it, nice and simply.

How is a personal Buy to Let different to a limited company Buy to Let? 

A personal Buy to Let is where you are buying the property in your personal name. Typically speaking, someone who owns one or two Buy to Lets will probably own them personally. 

A limited company Buy to Let is where you set up a specific limited company with certain business practices agreed beforehand. You then own the Buy to Let property via that limited company. 

This makes a big difference with the lenders. Not every lender will offer limited company Buy to Let mortgages, and there’s a few differences in the interest rates too. 

It’s worthwhile talking this through with a broker to really understand the differences between owning in a personal name or through a limited company. That way you can assess your options and make sure you get things set up the right way for you.

Who can get a Buy to Let mortgage, can anyone?

Yes, anyone can get a Buy to Let mortgage. If you’re a first time buyer or a non-homeowner it is more difficult, but there are some options for you. Lenders do like you to be a residential homeowner and not a first time buyer, in general.

How much can I borrow on a Buy to Let mortgage? What deposit do I need?

Typically speaking you will need at least a 25% deposit for a Buy to Let, although some companies will accept a 20% deposit. 

How much you can borrow is based on a couple of things. Your personal income will come into it, in terms of access to the lenders, and the other side is the amount of rent you’re going to generate.

Lenders will look at the rental income and apply ‘stress testing’ as part of their lending criteria. Based on that, they will then give you a figure for how much you could borrow. 

It’s very different to residential mortgages, where lending is very much based upon your personal income. With Buy to Let, lenders take more details into consideration, but it’s predominantly about the rental income. 

The best way to work out your affordability is to have a conversation with an adviser like ourselves. We can look at the different properties, different rents and explore the affordability you’re looking at and the type of properties that you’ll be able to purchase.

What are the costs involved in Buy to Let?

There are quite a few costs involved. You’ve got your typical house purchase costs such as your solicitor and conveyancing fees. You will also then potentially have your broker fees. 

The big one is your stamp duty costs. As things stand at the moment in October 2022 there is a 3% surcharge on second properties, so the bill for your stamp duty can get quite big quite quickly. 

Again, it’s worth knowing the detail from the outset so you can budget for these costs. As always, preparation is key. Get to know what your options are, get the costs early on so you don’t get caught out by any surprises. 

Is it illegal to rent out a house without a Buy to Let mortgage? Is it illegal to live in your own Buy to Let property?

The short answer is yes, but there’s more to it than that. If your intention is to buy a property to rent out, then you need to have the right type of mortgage. You need to have a Buy to Let mortgage in place. 

Everyone’s personal circumstances do change and lenders appreciate that. So if something happens, lenders are always open to a conversation. 

Should I choose interest only or repayment on a Buy to Let mortgage?

Historically, it’s been the case that landlords go for interest only. As things have changed over the last few years around tax, conversations about repayment Buy to Let mortgages have become more common. 

It’s down to personal choice and talking through your options. We would talk to you about your plan for that income. Are you buying that rental property to top up your monthly income? If so, maybe an interest only mortgage is the right thing for you. 

Or is it a long-term investment where you want to build up equity in that property to use as a pension pot in future? Then a repayment mortgage might be the best option. Let’s have that conversation, understand your options and what’s right for you to set your mortgage up the right way.

How many Buy to Let properties can I own? Is there a limit?

No, there’s no limit. You can have as many Buy to Lets as you want. In the lender’s eyes, if you have up to four properties you’re a standard Buy to Let landlord. Once you go above four properties you become a portfolio landlord,

The rules and regulations are slightly different for a portfolio landlord and the type of mortgage you need can be different as well. Bear that in mind – as you buy more and more properties, there may be new rules that you need to look at when you reach that stage.

What else do we need to consider when it comes to Buy to Let? 

The key thing here is preparation. And because Buy to Let lenders tend to work predominantly with mortgage brokers, to get access to the most suitable deals you should have a conversation with a mortgage broker like ourselves. 

The terms and the criteria of the lenders changes dramatically between Buy to Let for a limited company, for a portfolio landlord and as an individual. 

There’s lots of things to consider here, so talking to somebody who really knows what they’re doing and understands the market will save you a huge amount of time and stress. It will also mean that you’re getting the most suitable deal for your circumstances. Let us work with you and guide you through the options that are there for you.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

Your property may be repossessed if you do not keep up with your mortgage repayments. 

The Financial Conduct Authority does not regulate some Buy to Let Mortgages.