Buy-To-Let As An Investment Opportunity
The demand for rental properties across the UK has made being a landlord an appealing investment prospect.
If you’re buying a property with the intention of letting it out, it’s imperative you get the right type of mortgage.
What Is A Buy-To-Let Mortgage?
A buy-to-let mortgage allows you to borrow money to purchase a property which you rent out to tenants. They’re often more expensive than a residential mortgage as they’re considered a higher risk.
If you have a residential mortgage and you rent out your property without telling your lender, you could be committing mortgage fraud.
Deposit for Buy-To-Let
A higher deposit is needed for a buy to let mortgage than a residential mortgage. You’ll be expected to raise at least 25% though some require up to 40%.
Buy-To-Let Mortgage Rates
Buy-to-let mortgage rates vary, and like any other type of mortgage; are dependent on a number of factors. The bank will assess how risky the loan is, how much the deposit is and your credit score.
Banks and building societies charge higher rates for buy-to-let properties as they are a riskier loan.
Rental Income
Affordability is assessed by a calculator that weights up personal income and expected rental income against the property. Most lenders will require the annual rental income to equal at least 125% of the annual mortgage repayments.
Statistics show that borrowers are more likely to default on a buy-to-let than a residential mortgage. This accounts for the higher rates. The required rental income buffer on top of mortgage interest due is there to allow for a periods where the property sits empty.
Do You Qualify For A Buy-To-Let Mortgage?
A list of other eligibility criteria must be met for buy-to-let mortgages. For example a minimum age, often 25, and a minimum income of around £25,000.
No more than three buy-to-let loans can be held at once and there is a cap on the total amount you can borrow.
Compare The Best Buy-To-Let Conveyancing Quotes
As a Buy-to-let investor you can quickly compare competitive conveyancing quotes online. Use our fast Conveyancing Supermarket quote calculator. It saves both time and money. You can find a Conveyancer online and check costs. Find a Conveyancing Solicitor that understands your legal needs in an instant. Each conveyancing quote fully details the Solicitor’s fees and disbursements.
You can view and compare instantly, and when ready book a call from your Conveyancer. You can even filter by mortgage lender as we know that some stipulate that you must use a Conveyancer that has been approved by them. Conveyancing is a complicated legal process and it’s important to understand it prior to applying for a buy-to-let mortgage.
Choice Of Mortgage Deals
You will usually have a choice of mortgage deals, including fixed rate and tracker loans. Arrangement fees also apply although they can be high, typically more than £1,000.
Many landlords like fixed-rate mortgages which allow for more accurate budgeting. Whilst tracker loans are often cheaper they may fluctuate.
Important Points For Consideration
- Buying to let can be risky.
- Can you cope if your property is empty for a period of time?
- What will you do if your tenants don’t pay?
- If you use a letting agent and the property is un-tenanted will you have to pay letting agent fees? Don’t forget you will also have to pay your mortgage.
- Will you use a letting agent?
- If not, you will need to do written agreements, take personal information, references etc yourself?
- Do you have contingency budget for repairs?
- If you are doing this alongside a full time job do you have time to be a landlord?
- Tenancy agreements should be legal documents, you will need to have these drawn up
- You have a responsibility to your tenants
- Your property should pass relevant health and safety and fire checks:
- Gas safety certificates for all appliances
- Energy Performance Certificate (EPC)
- You will need specific landlord insurance
Whilst becoming a landlord has pros and cons if considered carefully it can make a fantastic investment. There are many people who have no desire to own their own home and looking for a reliable landlord.
FAQ’s
What Is A Buy-To-Let Mortgage?
A buy-to-let mortgage is a mortgage designed for people buying properties they intend to let out. They work by providing you with a loan to purchase a property which is let to tenants, or to allow the refinancing of an existing property that you rent out.
What Percentage Do I Need For Buy-To-Let?
Interest rates on buy-to-let mortgages are usually higher than standard mortgages. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%).
What Is The Criteria For A Buy-To-Let Mortgage?
The minimum income requirement is usually £25,000 for a buy-to-let mortgage application. You will also have to meet other affordability criteria set by the lender.
Can First Time Buyers Buy-To-Let?
Yes you can, but you may be limited when it comes to getting a mortgage. This is because most lenders need you to own your own residential property, sometimes for at least six months, before they will offer you a buy to let mortgage.
Are Buy-To-Let Mortgages More Expensive?
Buy-to-let mortgages are typically about 1% more expensive than ordinary residential mortgages. This is because banks view buy to let mortgages as higher risk than owner-occupier mortgages. Some buy-to-let mortgages also have higher arrangement fees, sometimes up to 3.5 per cent of the property value.
Do I Need A Buy-To-Let Mortgage?
To rent out a property you need a buy-to-let mortgage. You’ll usually need a deposit of at least 25 per cent of the property purchase price. Many buy-to-let mortgages are interest only, which means you only pay the interest each month rather than paying off the debt. When you sell the property you repay the capital in full.
Can I Have 2 Mortgages?
Yes, you can have two mortgages. You need to be able to demonstrate to the new lender that you can afford to pay both mortgages. The lender will usually deduct the monthly payment for your old mortgage from your income before calculating the maximum borrowing limit for the new purchase.
Are Buy-To-Let Mortgages Cheaper?
Actually, buy-to-let mortgages are usually more expensive.They are typically about one percentage point more expensive than residential mortgages. This is because banks view tenants as higher risk than owner-occupiers. Some buy-to-let mortgages also have high arrangement fees – as much as 3.5 per cent of the property value.
What Is LTV For Buy-To-Let?
The amount you can borrow in relation to the property value is called the loan-to-value or LTV. It is generally lower for Buy-To-Let mortgages, so you wouldn’t be able to get this type of mortgage with just a 10% deposit.
Can You Get Tax Relief On A Mortgage?
Mortgage interest relief is administered via Tax Relief at Source (TRS). You do not have to be earning a taxable income to qualify for mortgage interest relief. Normally, you do not claim mortgage interest relief in an annual tax return because it is given directly to you by your mortgage lender.
