Landlords – Buy to Let Mortgages
Buy to Let (BTL) mortgages are specifically tailored for landlords who wish to purchase residential property to rent out.
Although many of the rules are similar to ordinary mortgages, there are some crucial differences which potential landlords should be aware of.
Charles Carter work closely with The Finance Roome to provide mortgages to many different people, whatever mortgage product they are looking for.
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Who can get a Buy to Let mortgage?
- You need to be looking to purchase residential property to rent out.
- You should already own your own home, either outright or with an existing mortgage.
- You must have a good credit rating and can show you are able to afford repayments, despite any existing mortgage and credit commitments.
- You already earn at least £25,000 a year.
- You can meet certain age criteria. Lenders do vary on this point but the general rule of thumb is that you need to be 75 or under when the mortgage period expires. For example you may take out a 25 year mortgage at the age of 45 which will expire when you are 70.
How do Buy to Let mortgages differ from other mortgages?
- Interest rates on BTL mortgages tend to be higher.
- Associated fees are also usually higher.
- The minimum deposit for a BTL property is generally 25% of the purchase price.
- The majority of BTL mortgages are interest only. This means that you pay the interest rate monthly and are required to pay back the full sum of the mortgage when the term expires.
- BTL mortgages are not covered by the Financial Conduct Authority (FCA) regulations. There are some exceptions such as Consumer Buy to Let mortgages where the property is let to a close family member.
How much you can borrow.
The maximum amount you can borrow with a BTL mortgage is closely linked to the prospective rental income. Usually the lender will require the monthly rental to be 25-30% higher than your monthly mortgage repayment.
Where can you get a Buy to Let mortgage.
Most of the major banks and financial lenders are willing to provide a BTL mortgage.
It is always a good idea to talk to a mortgage broker or financial advisor to get specialist advice about the best deal for you. Comparison websites can give you good information about what is currently being offered and spending some time researching the mortgages available will be well spent.
Other important factors to consider.
As with any investment there are risks associated with BTL mortgages. Here are some of the factors you should consider.
- Times when you will not have rental coming in. Inevitably there will be periods when the property is empty and you are not receiving rent. Most usually this occurs when a tenant had left a property and you are seeking a new tenant. On other occasions vital repairs may be needed which will exceed the rental income. To cover these eventualities it is sensible to put money aside from the rental income into a contingency fund.
- Repaying the mortgage at the end of the term. Many people assume that they can simply sell the property at the end of the term to raise the funds to pay off the mortgage. If house prices have fallen since you purchased the property then you may need to make up the shortfall.
- Tax considerations. If you sell your BTL property for a profit then you are liable to pay Capital Gains Tax if the gain exceeds the annual Capital Gains Tax threshold. If the rental income exceeds the mortgage interest repayment it may be liable for Income Tax.
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