Buy to Let Mortgages
Whether you're taking your first step into property investment or you're an experienced landlord expanding your portfolio, our experienced advisors are here to help. We specialize in securing a tailored buy-to-let mortgage for all client types and every kind of buy-to-let property. See more below.
What is a
Buy to Let Mortgage
A Buy-to-Let (BTL) mortgage is a specific mortgage designed for purchasing or remortgaging a property with the intention of letting it out to tenants, unlike a standard residential mortgage taken out to buy your own home. This guide will walk you through the key aspects of BTL mortgages, helping you understand the various structures, lending options and types of finance which can be applied for by our experienced advisors.
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The Types of
Buy to Let Ownership
When considering a BTL mortgage, it's important to understand that there are several types of ownership structures available, each with its own set of benefits and considerations.
We strongly recommend seeking professional tax advice before deciding on the most suitable structure for purchasing, refinancing, or transferring a property between family members or friends, as these actions can have significant tax implications.
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The property is owned in your personal name. This is the most traditional approach and typically the most straightforward in terms of application process.
However, recent tax changes may have reduced the appeal for higher-rate taxpayers, particularly regarding mortgage interest tax relief.
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Many landlords now choose to purchase buy-to-let properties through a limited company, often set up as a Special Purpose Vehicle (SPV) solely for property investment. This structure can offer potential tax advantages, such as access to different corporation tax rules and the ability to offset mortgage interest as a business expense.
However, mortgage rates and fees may sometimes be higher, and not all lenders will lend to SPVs.
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In some cases, properties can be purchased under a trading business where property letting forms part of a wider trading activity. This approach is less common for most individual landlords but can be relevant for those running broader business operations involving property.
It may allow for more complex financing but also requires specialist advice to ensure compliance with lending criteria.
Navigating BTL mortgage applications requires a clear understanding of the specific criteria used by lenders. Although these can vary, there are several common requirements to prepare for.
Key Features of Buy to Let Mortgages
Deposit Requirements
BTL mortgages usually require a larger deposit than residential mortgages.
Minimum Deposit: Typically, you’ll need to provide at least 25% of the property’s value as a deposit.
Loan-to-Value (LTV): Some lenders may consider a 15-20% deposit (80-85% LTV), but a larger deposit can often secure a more competitive interest rate.
We can look to raise funds against background properties. Please speak to us to get an idea of how much you can borrow.
Rental Income Assessment
This is the most important factor for lenders. They need to be confident the rental income will cover the mortgage and more.
Interest Coverage Ratio (ICR): Lenders use an ICR to test affordability. Usually, they require that expected rental income is between 125% and 145% of the monthly mortgage payment, assessed at a ‘stress test’ interest rate (often around 5.5% or higher).
Example: If the monthly mortgage payment at the stress test rate is £1,000, the property would generally need to achieve at least £1,250 to £1,450 in monthly rent.
This can change drastically from lender to lender, please get in touch with our experienced advisors to find out more.
Personal Income and Status
While rental income is important, lenders also consider your personal financial situation. Many require a minimum annual income of around £25,000 to ensure you can handle void periods or unexpected expenses.
Most lenders also prefer you to already own a home. However, we work with a range of specialist lenders who offer greater flexibility. Some don’t require a minimum income, and many are open to first-time buyers looking to become first-time landlords.
Please get in touch and we can provide a tailored options to put in the best position as you look for new properties.
BTL Mortgage Interest Rates
Interest rates on BTL mortgages are generally higher than those for residential properties. Many BTL mortgages are arranged on an interest-only basis, meaning you pay just the interest each month and repay the capital in full at the end of the mortgage term, often by selling the property. Repayment options are also available.
The best structure will depend on a number of factors including: Long Term Goals, Future Planning, Improvements you may make to the property and other aspects.
Our Advisors will be able to outline various scenarios and provide advice on what we feel is the best finance option to suit your current and future plans.
How a Mortgage Broker can help
Navigating the world of mortgages can feel overwhelming, but you don't have to do it alone. A mortgage broker is an expert who provides support every step of the way.
Benefits of using a broker:
Expert Guidance: We simplify complex terms and explain everything in a way that's easy to understand.
Access to More Deals: We can search thousands of mortgage products from a wide range of lenders to find the right fit for you.
Help with Your Application: We'll help you prepare your application and handle the paperwork, increasing your chances of success.
Support for Your Situation: Whether you have a small deposit or complex income, we have the experience to find solutions tailored to you.
Working with a trusted advisor provides the peace of mind that you're making clear, confident decisions on your path to home ownership.