Buy To Let Mortgages – Your Frequently Asked Questions
Listen below as Chris Needham talks all about Buy To Let Mortgages
In less than 10 minutes, you’ll know a lot more about getting your Buy to Let mortgage sorted.
What is a Buy to Let mortgage and how do they work?
Residential mortgages are the loan that you take out on a property that you want to live in. If you’re buying a property with the intention of renting it out, not living in it, you’ll need a Buy to Let mortgage.
How is a Buy to Let mortgage different to a limited company Buy to Let mortgage?
With both of those mortgages it’s usual to require a 25% deposit. Whether you’re borrowing in a personal name or in a limited company is all about different tax statuses. A limited company has to be set up ready to buy the property and the borrowers need to be the directors of the limited company. Some people do it that way because it can have tax advantages.
Who can get a Buy to Let mortgage?
Anyone could get a Buy to Let mortgage. Most lenders will want you to own a residential property before they’ll let you Buy to Let. That is because they want to make sure that you’re not going to live in it.
That said, there are some lenders that will lend to First Time Buyers. It may be that someone has never actually owned a property. Maybe they live with a partner that already owns a home. They don’t want to buy a property for themselves to live in, so they might buy an investment property as a Buy to Let. A number of lenders will allow that.
How much can I borrow on a Buy to Let mortgage? What deposit do I need?
Largely, you need a 25% deposit – that’s 25% of the value of the property you’re looking to buy. Some lenders were doing it with a slightly smaller deposit of 20%, but there’s not many in the market at the moment. The rates are really high on those too, so you’re better off if you’ve got a 25% deposit.
A residential mortgage lender looks at your personal circumstances – your income and your outgoings – to see how much they think you can afford. With a Buy to Let mortgage it’s more about the deposit and the potential ‘monthly rental yield’ from that property.
Each lender has different calculations and different criteria, but they concentrate on the monthly rent you can achieve from that property. That will determine how much you can borrow.
So it is quite complicated, which is why it’s always a good idea to work with a mortgage broker. We understand which lenders have the most relevant criteria so we can give you all the options.
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Is it illegal to rent out a house without a Buy to Let mortgage and is it illegal to live in your own Buy to Let?
There are a couple of parts to this. Let’s say you’ve got a residential mortgage on a property that you’ve lived in for a while, and something changes in your circumstances. Perhaps you’re moving away with work. You can explain this to your own residential lender that you like to rent the property out for a period of time.
It’s up to the lender whether they agree, but in some cases they will give you Consent to Let. This is effectively an agreement that you can rent out your property even though it’s on a residential mortgage.
However, if you take out a Buy to Let mortgage and then move into the property, yes, that’s against the mortgage conditions and the terms from the lender. A property with a Buy to Let mortgage needs to be rented out on a tenancy agreement. You can’t live there.
Should I choose interest only or repayment on a Buy to Let mortgage?
Most Buy to Let mortgages that we arrange are interest-only mortgages. That means that each month you’re only paying the interest, and the debt you’ve secured on that property is not reducing.
An interest-only mortgage has much lower payments each month than a repayment mortgage. So it depends on your objectives on buying the Buy to Let property. If you’re looking to use the rent each month to repay the mortgage, you might be better off on a repayment scheme. Whereas, if you’re less interested in the mortgage being repaid and are looking for profit each month, you might be better off on an interest-only basis.
We take time with each client to make sure they understand the differences, the risks and the rewards of both options so that we can advise them on which is the most suitable.
How many Buy to Let properties can I own?
All lenders are different. We work with some clients that have one or two Buy to Lets. We’ve also got some clients that have got over 20 properties. Some lenders will limit your Buy to Lets to just three, while others will let you have an unlimited number. They tend to be the more specialist lenders.
Is there anything else we need to know when it comes to a Buy to Let mortgage?
It’s important to get in touch with us before you go looking for property. We’ll make sure you understand the rates available, some of the criteria the lenders are now putting in place and how much you could borrow.
There are likely to be some changes to legislation over the next couple of years around the type of property that can be rented out, particularly regarding energy efficiency. So do get in touch with us in plenty of time so we can help you through the process and work out what is the right deal and strategy for you.
Your property may be repossessed if you do not keep up repayments on your mortgage