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The Financial Conduct Authority do not regulate buy to let mortgages.
Buy to Let Mortgages – What you Need to Know
If you’re looking to make an investment into property, then you may be considering a Buy to Let mortgage (BTL) to set you on the path to becoming a landlord. This financial product is specifically designed for those who want to turn a property into a source of income by letting it out to tenants, rather than living there themselves.
Who Can Get a BTL Mortgage?BTL mortgages are intended for those who aim to own and let property to others. There are a few essential differences between this type of loan and a traditional residential mortgage, to be used on a property you occupy yourself, and some criteria you usually need to meet.
- Existing Homeowner – lenders will usually want you to already own a home, whether you’re still paying the mortgage or you own it outright.
- Good Financial Situation – as with a standard residential mortgage, lenders will assess your personal finances for affordability, looking at factors such as your credit rating, existing financial commitments and committed monthly outgoings. Many lenders will also require that you have an annual salary above £25k per year.
As a lot of factors go into securing a buy to let mortgage, getting qualified advice from a mortgage broker can help you decide what’s right for you and your personal circumstances.
How do BTL Mortgages Work?Buy to Let mortgages are seen as a higher risk financial product than standard residential mortgages. As landlords are often already paying a residential mortgage on their first property, and can potentially face issues with finding a tenant and receiving rent payments, there is a bigger risk to the lender of defaults on payment.
This means that the deposit required for a BTL mortgage product is typically higher – usually set at 25% of the total property value. In order to secure the most favourable terms, a lender may even require a deposit of 40%. Other costs, such as the arrangement fee, also tend to be more costly than those for a residential mortgage.
How Much Can You Borrow on a BTL Mortgage?Using a mortgage calculator can give you a clearer picture of how much you may be able to access. BTL mortgages generally require the expected rental income to be at least 125% of the monthly mortgage payment. A mortgage broker can guide you through the necessary requirements. You may also need to demonstrate a plan for periods where there is no rent coming in, such as savings or signing up to landlords insurance that covers this eventuality.
Buy to Let and Tax implications and AdvantagesYou can also access some tax relief when you rent out property. Landlords can deduct mortgage interest and certain other costs from rental income before taxation and offset 50% of your mortgage interest payments against rental income generated. There are also some additional taxes and financial obligations when purchasing a rental property, so making an appointment with a mortgage broker will help you understand exactly what these are in your situation.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.