In this guide
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Do I Need A Buy-To-Let Mortgage?
You will need a buy-to-let mortgage if you are buying a property with the intention of renting it.
If you plan to rent out your residential property long-term, you will need to switch your current mortgage to a buy-to-let mortgage.
You may not need a buy-to-let mortgage if you’re renting out your property on a temporary basis, but you will need the consent of your lender. Without permission, you will be in breach of your mortgage contract, and your lender might demand instant repayment of your mortgage.
Cost Of Buy-To-Let Mortgages
Buy-To-Let Mortgages cost more than residential mortgages. They are more expensive because:
- The interest rate is higher
- Lender fees are higher
- You need to pay a deposit of at least 25%
Lenders charge more for buy-to-let mortgages because they view tenants as a higher risk than owner-occupiers.
Buy-to-let expenses include:
Most mortgage lenders will require a deposit of 25% (75% loan to value) on buy-to-let mortgages. However, some lenders will let you put down 20% (80% loan to value) and some specialist lenders will consider 15% (85% LTV).
It is usually best to put down a higher buy-to-let mortgage deposit. With a deposit of over 40%, you would secure the best interest rates on the market.
To get your deposit together, you should start to save as early as possible. To access money sooner, you could remortgage your current property to release equity.
Find out more in our remortgage guide.
At YesCanDo Money, we can give you advice on house deposits and your remortgage. We will also help you find the buy-to-let mortgage that is suited for your particular needs.
The amount of stamp duty you pay will depend on whether you’re a first-time buyer or if you are taking out a second mortgage to rent out a property.
First-time buyers pay standard home mover stamp duty rates.
If you are buying a second property, you will pay 3% extra in stamp duty.
However, some properties, such as a caravan, houseboat, or mobile home, are exempt from stamp duty charges.
To find out how much stamp duty you will have to pay, you can use a stamp duty calculator.
You can also learn more by speaking to an experienced mortgage broker.
You will need to pay tax on your buy-to-let.
This will include tax on the income you make from renting out your buy-to-let. You will need to declare your income on a Self-Assessment tax return.
You also have to pay:
- Stamp duty land tax
- Capital gains tax (if you sell the property for more than you originally paid for it)
There are a number of fees incurred with a buy-to-let mortgage. These include:
- Lender fees
- Legal fees
- Survey fees
Some mortgage brokers will also charge you a fee.
At YesCanDo Money, we will NOT charge you a fee for our services. Speak to a mortgage adviser for free today.
How To Make Money On A Buy-To-Let
Tenant demand remains strong but recent tax and regulatory changes have made it hard for some landlords to make a profit.
This isn’t to say you won’t make money after buying a buy-to-let.
You can make a greater profit if:
- You sell your buy to let property after it has gone up in value
- Rental rates increase in the local area
- You use a better value letting agent
- You manage everything yourself
You also stand to make a profit if you buy in the right area
This could be where:
- There is a high demand for tenants, such as an area located near a university
- An area where house prices have fallen (cheaper homes equate to a lower mortgage)
How Much You Can Borrow
Along with the lenders’ usual eligibility criteria, the amount you can borrow will depend on how much you expect to make in rent on any of your desired buy-to-let rental properties.
Mortgage lenders typically want the rental income to be 25-45% more than the monthly mortgage repayments.
To find out what your monthly rental income might be, talk to other landlords in the area, or visit local letting agents.
Get in touch with one of our specialist mortgage brokers for more advice on everything mortgages.
When working out how much to lend you, lenders complete an affordability check with certain eligibility criteria. They will look at your salary and the expected rental income. This is so they can be certain that you will be able to afford the monthly mortgage payments.
Lenders might also ask for other details before agreeing to the mortgage. These include:
- The price of the property: Some lenders only lend if the value is over $40,000
- The number of properties you own: This is so the lender can get an idea of your track record
- Your age: You need to be at least 18, though some lenders will only lend to you if you’re over 25
- Property demand: The more demand there is for your property, the less risk for the lender)
- Your income: Lenders sometimes ask for a minimum of £20,000 to £25,000
To work out how much you might be able to borrow on a buy-to-let mortgage, you can:
- Use a buy-to-let mortgage calculator
- Speak to a mortgage broker
To make sure you can afford the property, you should also calculate the expenses associated with being a buy-to-let landlord. Other than your monthly mortgage payment, you should budget for:
- Landlord insurance
- Letting agency fees (tenant finds, tenancy agreements, property management etc)
- Credit checks
- Health and safety checks
Compare Mortgage Deals
You won’t always find the best deals when comparing mortgages online and at your local high street.
To ensure you get the best deal and interest rates for you, get in touch with our team at YesCanDo Money for advice on everything mortgages.
We have access to lenders that you won’t find anywhere else, including specialist lenders that could be right for your particular situation.
We will compare the best buy-to-let mortgage deals on your behalf and will advise you on which deal is best for your property goals.
With a dedicated advisor, you will have all the help you need for every step of the mortgage journey. We will make sure that you choose the right deal to make your buy-to-let a profitable investment.
Types Of Buy-To-Let Mortgage
There are several types of buy-to-let mortgage to choose from. There are pros and cons to each, so for advice you can trust, talk to one of our experienced mortgage experts.
With a fixed-rate mortgage, you can fix your mortgage from between 2-15 years. Your interest rate and monthly repayments will stay the same during this time. After the fixed term has ended, you will switch to the lender’s standard rate of interest unless you switch or re-fix your mortgage.
Discount variable-rate mortgages are linked to the lender’s standard variable rate (SVR) with a discount applied. Even when the variable rate fluctuates, the discount will remain the same.
With a tracker mortgage, the rate of interest is set above the variable rate. It is marked up against the Bank of England’s base rate. If this rate fluctuates, so too will your mortgage. Currently, the base rate sits at its lowest ever for the Bank of England sat of 0.10%.
Most buy-to-let mortgages usually interest only. This means you only pay the interest each month rather than the capital amount. The advantage here is that your monthly interest payments will often be lower than any fixed rate repayments. However, you will need to pay off the entire loan balance at the end of the mortgage term.
The process of getting first-time buyer buy-to-let mortgages isn’t as smooth as getting a residential mortgage. This is because lenders are cautious about lending to anybody who hasn’t owned their own property before.
Those that will lend to first time buyers will need to see proof of gross income. There will also be other rules in place that will need to be adhered to.
One advantage of this type of mortgage is that you won’t have to pay the 3% stamp duty surcharge that is often incurred by investors and second-home buyers.
However, as you won’t be residing in the property, you won’t be eligible for the first time buyers stamp duty discount.
Finding the right lender for this type of mortgage can be tough but to make your life easier, talk to one of our expert mortgage brokers. We will give you all the help you need if you’re considering this type of mortgage.
How To Get A Buy-To-Let Mortgage
Looking to invest in the rental property market? The best way to organise buy-to-let mortgages is to go through a free mortgage broker. The will make the mortgage application a lot smoother for you.
This way, you will save yourself time and disappointment, as brokers like us know which lenders are right for your situation.
We have access to thousands of mortgage deals with access to your best available mortgage rate.
Furthermore, we don’t charge a fee for our services, so you can benefit from both expert advice and the best mortgage rates on the market.
Speak to a member of our team today if you’re looking to invest in a buy-to-let property and need mortgage advice.
Advice To Buy-To-Let Landlords
There are some things every landlord should know so it is important to do your research first. However, we have covered some of what you need to know in the guide below.
Many of the costs and expenses you incur will be of little surprise to you. However, there will also be those surprise costs that pop up from time to time, such as sudden repair bills or cleanup costs after a tenant leaves.
To manage any unexpected costs, have an emergency fund to fall back on. This will be helpful for both expected and unexpected expenses, and it will also be useful when there is a shortfall in income after a tenant leaves.
Common expenses include:
- Property insurance
- Tenant deposit insurance
- Tenant checks
- Gas and electricity checks
- Decorating costs
- Maintenance costs
- Letting agent fees
Use a landlord property app to manage and track your expenses.
To work out your budget, tally up all the expenses you will incur as a landlord.
Then stick to the maximum price you want to pay on your property. This includes the price of the property itself, as well as the work you will do on it afterwards, such as decorating and landscaping.
Remember that any improvements you make will be advantageous, as you will:
- Attract more tenants
- Have the opportunity to charge more rent
But don’t spend more than you have to. Certain changes won’t affect the amount of rent you can charge, so limit your spending when you can.
Use a spreadsheet to calculate your income and outgoings, and use a landlords budget planner to help you budget for your property.
Assured shorthold tenancies
An assured shorthold tenancy lasts for a minimum of 6 months and a maximum of 12 months.
At the end of the tenancy, you can give your tenant notice to leave. Alternatively, you can arrange a new tenancy term and ask your tenant to sign a new agreement.
Long term tenancy
A long term tenancy period is for at least 2 years and less than 7 years.
Tenants favour these as it can give them better security.
There are benefits for the landlord too. These include:
- Shorter periods of time when the property is left empty
- A steady income coming in
- No need to advertise the vacancy
At the end of the fixed term, you can agree on a new fixed-term tenancy with the tenant, or let them remain in residence on a periodic basis.
With a guaranteed rent scheme, the landlord lets a third party (an individual or a company) manage the property. The landlord then gives consent to the third party to rent it out to other tenants. The third party will pay the landlord a fixed income and will take part of the rental income as a fee.
Guaranteed rent schemes benefit the landlord as they can bring in an income regardless of whether the property is vacant or not. Money can also be saved as the third party is responsible for expenses related to maintenance, compliance, and management fees.
However, lenders don’t always like to lend to landlords who are in guaranteed rent schemes.
Speak to one of our mortgage experts for further advice on this matter.
The easiest way to work out how much rent to charge is to use a rent calculator. It will calculate a figure based on the locality of your property.
You can then lower or raise the rental figure depending on the following.
- The rental prices of other properties in the area
- The minimum income you need to turn a profit
- Furnishings and appliances (you can charge more if any are included)
- Demand (if there is a high tenant demand in the area, you could charge a greater amount- remember to be fair, however)
As a landlord, there are a number of legal responsibilities you will need to adhere to. You will need to ensure your property is free from health and safety hazards, for example. This will include making sure repairs have been carried out effectively. You will also need to make sure all gas and electrical equipment has been safely installed.
Visit Gov.UK for further advice on the responsibilities you will incur as a landlord.
Frequently Asked Questions
You can re-mortgage your buy-to-let if you need to release equity to raise some cash. It’s also a good idea to remortgage if you want to move to a more favourable mortgage deal as this can make a huge difference to your monthly repayments.
For most people, remortgaging will be a fairly straightforward process. However, others find it more difficult, depending on their situation and a number of key factors the lender will take into account.
One such factor is the purpose of the remortgage as this will impact the deals and the lenders you will be eligible for.
If your fixed rate is coming to an end, it is advised to get a broker to orchestrate your mortgage product / lender switch. They will make sure that you don’t fall onto a Standard Variable Rate (SVR) whilst making sure you don’t cancel your mortgage too early and up with any repayment charges.
It can be a minefield, but for free advice and support on remortgaging and all other aspects related to buy-to-let mortgages. We make getting any mortgages easy and pain-free, get in touch with us today.
As a leading mortgage broker, we are here to answer any questions you have about the mortgage process and can help you get the right deal for you.
Whether you have one buy to let or you’re a portfolio landlord, speak to us today. We have access to the best buy to let mortgage rates you can qualify for.
With over a hundred mortgage lenders, banks and building societies offering buy-to-let mortgages there is a lot of competition for your mortgage. Although interest rates are always going to be very important there are factors to consider. What fee is the mortgage lender charging? It makes no sense to have a low rate with a high arrangement fee for example. There are some very good mortgage deals available and your mortgage broker will be able to shop around to find the very best deal for you.
Buy-to-let mortgages at 85% loan to vale (LTV) are the highest LTV you can get as a landlord investor. However, you will get access to more mortgage products with better rates if you have atleast a 80% – 75% LTV.
You will be able to remortgage your buy to let mortgages after 6 months of owning the property. If you bought the property at auction or purchased with cash some lenders will let you remortgage before 6 months. It is important that you check that you have no repayment charge with your existing lender and you take these into consideration. If you are on the base rate or variable rate there could be considerate savings on your mortgage payment by remortgaging.
You can be approved for a mortgage anywhere between 2-6 weeks after your application. If your application is complex, it can sometimes take longer. This might be because the lender has to look further into your credit file history. Or they may need to confirm certain details with you. If the lender has a backlog of mortgage applications, this can also be the reason why your application is taking longer.
It is not possible to get a normal residential mortgage with the intention of renting it out. If you have been living in a property for a while and your circumstances change that means you need to rent the property out this can sometimes be allowed. Banks and building societies will sometimes give permission to let out a residential property and this is called a consent to lease. If you are about to become a landlord on not will depend on which lender you are with and what their criteria are, as this does vary massively across all lenders. There will need to be a very valid reason for example moving abroad for a year with work. The lender will want to look at rental income, loan to value, and the loan amount you have. Alternatively, you may need to remortgage to a buy to let mortgage.
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