Buy to let guide

A buy to let mortgage is when you take out a mortgage on a property that you intend to rent to tenants for a profit.

As a buy to let mortgage is classed as a business investment, the interest rates are often higher than a typical mortgage and you will need to put down a larger deposit too – usually around 25%.

Do you NEED a buy to let mortgage if you want to rent out your property?

Yes. Whether you’re buying an entirely new property to rent or moving house and wanting to rent out your old home, you will need a buy to let mortgage.

The only time you won’t need a buy to let mortgage is when you can pay off the property entirely and don’t need a mortgage at all.

As you won’t be living in the property, the mortgage will be assessed differently. Instead of largely being based on your income (like a residential mortgage), it will be assessed based on the profit you can potentially generate based on the rent. 

If you plan to rent out your property, you need to inform your lender or you could be breaching your contract. If you used a mortgage broker, contact them for advice. 

Main differences between a residential mortgage and buy to let mortgage

  • Interest rates. These are higher than for standard residential mortgages.
  • Deposit. Again, lenders will often require a higher deposit than for a residential mortgage. Although there are some 85% LTV buy to let mortgages, you will usually need a 25% deposit. 
  • Lending criteria. As mentioned, it will be based mainly on the profit you can generate through renting out the property, rather than your own income. Lenders will apply a rent to interest (RTI) cover calculation and require that rental income is 120%-130% of the mortgage repayment.
  • The repayments. Most buy to let mortgages are interest only; so you don’t make monthly repayments but rather at the end of the mortgage term, the capital is paid in full.

Can I get a buy to let mortgage?

In most cases, lenders will have certain criteria for granting buy to let mortgages. These can include:

  • Homeowner. It is usually easier to get a buy to let mortgage if you already have paid or are paying a residential mortgage.
  • Credit score. Lenders will prefer to lend to applicants with a good credit score.
  • Income. Some lenders will not lend to anyone earning less than £20,000 – £25,000 per year.
  • Your age. Some lenders may have upper age limits of around 70 or 75.

Tips for getting a buy to let mortgage

If you’re interested in investing property and want to get a buy to let mortgage, here are some of our top tips.

  • Be prepared for risk. Any kind of financial investment has its risks and this is no different. As you’ll be relying on rent to make your repayments, you have to be prepared for any void periods. You will also have to account for any repairs that need to be made to the property.
  • Be wary of rates. Part of the risk is also the housing market itself. Be aware that it will fluctuate and rates may rise.
  • Do your research. Use our mortgage calculator to make projections and find out key details, such as how much of a deposit you will need.
  • Talk to a professional. We strongly advise seeking advice from a professional when it comes to buy to let mortgages. A good mortgage broker will not only be able to find you the best deals but will be able to give you the right advice according to your circumstance. 

Thinking about buy to let? Talk to! We’re mortgage advisors that offer free impartial advice and we’re open 24/7. 

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Last modified: 21/10/2021