Buy to Let: Our Guide to Securing the Right Finance

Buy to let mortgages are designed specifically for people who want to invest in property to rent out. You can’t take out a buy to let mortgage if you are planning to live in a property bought with this type of mortgage, and there can be serious consequences if you rent out a property with a residential mortgage attached to it.

Lending Criteria

The criteria for buy to let mortgages are different to what you can expect for a residential mortgage.

If you’re a property investor with an existing portfolio, or you’re purchasing your first rental property and you understand the risks that you are taking with rental property then providing you can meet some criteria you will be eligible.

E
You own your own home with or without a mortgage.
E
You earn around £25000 or more a year. Less than this and you might struggle to secure a buy to let mortgage.
E
You’re younger than the maximum lending age less the length of the mortgage. So if the maximum age is 70 and you take out a 25 year mortgage you would need to be 45 or younger.
E
You have a strong credit record and aren’t committed too far with other borrowing.
E
You can demonstrate that the incoming rent will pay the mortgage and leave enough for any contingency, repairs, and maintenance and professional fees. Different lenders will have different criteria here. Many will want to see the mortgage payment value plus 25% – 30% before they consider a buy to let mortgage viable.

Our Top Tips

Do your research. Speak to a mortgage adviser who specialises in buy to let mortgages to find out what exactly different lenders will look for, and whether you are eligible. They will have access to the whole market as well as knowledge and experience in this field of lending.

Speak to local letting agents. As part of your research you can find out more about the local market. That means that you can sense check your rental figures with the professionals who will know exactly what you can realistically expect as rental income.

Start to get your paperwork together. If you’re self employed speak to your accountant who can help you with the evidence of your income that you will need. If you’re employed you’ll need the last few months’ payslips. Lenders will ask for between 3 and 6 months worth.

How Buy to Let Mortgages Work

Buy to let mortgages differ from residential mortgages. They are designed for the purpose of renting property as a business rather than borrowing to buy a home. That means that lenders consider that they are higher risk.

E
Fees and interest rates are usually higher than residential mortgages.
E
Deposits can be anywhere between 25% – 40%. This can vary from lender to lender and can sometimes be as low as 20%
E
Buy to let mortgage lending is not regulated by the Financial Conduct Authority except when you might want to rent to a parent, child or other family member. This type of mortgage will follow the same criteria as residential mortgages.
E
Buy to let mortgages are usually interest only, but repayment mortgages are sometimes available. That means that you pay the interest every month and have to pay off the loan at the end of the term. Repayment mortgages repay the capital and interest so there is nothing left to pay at the end of the term.

Our Top Tips

Run a cashflow forecast. Work out what your income and expenditure is likely to be for your rental property, and how it will impact your personal finances if you don’t have a rental income for a period of time. Take professional advice on this.

Calculate the cost of raising the deposit. You might raise this capital by remortgaging your home. You could secure this through other means of finance, or a family member might have left you a sum of money in their will. include this in your cashflow forecast to make sure you can afford it.

Speak to a professional. There are professional property investment consultants all over the UK.

Buy to let as a business and tax

Your buy to let property is a business. It’s advisable to have a plan in place to repay your mortgage if its interest only. But don’t rely on selling the property to do this. You will be subject to a number of taxes during the course of your business which you need to plan for.

E
If you sell your property you will be subject to Capital Gains Tax
E
You will need to declare any profit on your rental income on your self-assessment form
E
There will be times when you don’t have a rental income
E
Tax changes came into force in April 2020 that affect property investors

Our Top Tips

Treat your buy to let properties as a business. If you’re making an income from something its a business. You’ll get the most from it and be able to plan for any temporary loss of income, and grow your business

Take specialist financial advice. Speak to an accountant about the best structure for your business, and how you can mitigate your exposure to tax.

Speak to a property investment consultant. They have the expert knowledge and experience to know how to build your business from your first buy to let mortgage to a fully-fledged portfolio.

Our Final Word

Securing your buy to let mortgage can be challenging, and there are a number of criteria to meet before a lender will consider you for a buy to let mortgage. But with the right advice and support means that you can put in place all of the information and plans that you need to not only secure your mortgage but run your successful property investment portfolio.
So our final tip is to put together your network of professionals: specialist mortgage adviser, accountant, and property investment consultant.
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!