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Buy to Let mortgages

Buy to Let mortgages are for buyers purchasing a property specifically for the purpose of renting it out. They are usually more expensive than residential mortgages and are usually arranged on an interest only basis.

Who can get a buy to let mortgage?

Buy to let (BTL) mortgages are only suitable for people who want to invest in a property that they are not going to live in.

You’ll struggle to get a BTL mortgage if you don’t already own your own home, whether outright or with an outstanding mortgage.

You must have a good credit record and not be too stretched on your existing borrowing. You are likely to find it harder to get a BTL mortgage if you earn less than £25,000 a year.

Lenders will have their own upper age limits but they tend to be higher than with a residential mortgage as your ability to afford the loan is based on the rental income from the property rather than your personal income.

How do buy to let mortgages work?

BTL mortgages are in many ways just like ordinary mortgages, but with some key differences:

  • Lenders tend to prefer the borrowing on an interest only basis
  • Interest rates are higher
  • Deposits required are larger than for a residential property (minimum of 25% LTV)
  • The arrangement fees tend to be higher

Unlike obtaining a mortgage on a property you wish to live in, BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA) unless you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent or sibling). This means that most BTL mortgages are unregulated.

Plan for times when there’s no rent coming in

Don’t assume that you will always have tenants in your property.

There will almost certainly be voids when the property is unoccupied or rent isn’t paid, and you’ll need to have savings to draw on to meet your mortgage payments in case this happens.

You might also need savings for major repair bills – for example a blocked drain or a broken-down boiler.

Buy to let and tax

You will be required to pay tax on any profit that you make while renting your BTL out and if you sell your BTL property for profit, you will pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold.

Find out about Capital Gains Tax rates and annual tax-free allowances at hmrc.gov.uk.

 

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