A buy to let mortgage is a mortgage where the lender knows from the outset that you intend to rent out the property. You will have a tenancy agreement drawn up with your tenant called an Assured Shorthold Tenancy (AST) outlining the terms of renting the property.
Different types of Buy to Let mortgages
A standard buy to let property is where a single person/family/couple rent the property and there is simply one tenancy agreement in place. If the property is rented out on a per room basis and therefore there are many tenancies in place this would be classed as a multi-let or HMO (House of Multiple Occupation) property and therefore a more specialist mortgage would need to be in place.
Buying a Buy to Let in Personal or Limited Company Name
Due to tax changes introduced over the last several years it is important that you get tax advice around whether you should own a property in your personal name or through a limited company. Depending upon the ownership of the property different mortgages are available. Limited company buy to let mortgages tend to have a higher interest rate and have higher arrangement fees attached when compared to personal name buy to lets – however this is where the tax advice is key as there may be long term tax savings available owning a property through a limited company.
How much deposit do I need for a buy to let property?
The standard deposit for a buy to let mortgage is 25%, however, there are a few specialist lenders available via mortgage brokers that allow a 15% deposit (these can be limited edition products). The key here is making sure the rental income is sufficient to cover the Mortgage with an adequate surplus.
How to get a buy to let Mortgage
Over 50 lenders are offering Buy to Let mortgages and most will have different criteria to meet to see if you qualify, for example, they may insist the applicants earn a minimum income of £20,000, they may ask that you or any close family member has never lived at the property, they may want you to be a homeowner already, or you may have to have a high credit score. To compare the market and find out the most suitable Mortgage, you should seek advice from a mortgage broker who can give you the information in this area.
How much can I borrow on a buy to let mortgage?
Buy to let mortgage lenders will typically lend you 75% of the purchase price or valuation (whichever is the lower figure). Some specialist lenders can give you up to 85% of the purchase price or valuation (whichever is the lower figure – these can be limited edition products). How much you can borrow is dependent upon the rental income you will achieve. Lenders have many different ways of calculating how much you can borrow. For example, you may be able to borrow more if you take out a five-year fixed rate instead of a two-year fixed-rate or some lenders will want 125% rental coverage, whereas others may want 145% rental coverage. If you own the property in your personal name or through a limited company – this can also have different affordability calculations. The best way to find out what is available in the market, which lenders allow the maximum borrowing etc., is to speak to a specialist Buy to Let mortgage broker.
Can I release equity from an existing Buy to Let property I own?
If you are considering releasing equity to raise a deposit to purchase another buy to let you should explore all your options such as a remortgage, taking out a secured loan or a further advance with your existing lender. As mentioned above making sure you pass the lenders affordability checks and you have sufficient equity remaining in the property is key.
What if I have bad credit – are buy to let mortgages still available to me?
There are lenders who offer bad credit buy to let mortgages that do not credit score and will accept bad credit , such as defaults, missed payments and County court judgements. Whether you will be accepted will depend upon the dates of these marks, how much for and if you have managed to satisfy them. Getting an up to date credit report and speaking with a buy to let mortgage broker is advisable to understand your options.
Can I change my Mortgage to a buy to let Mortgage?
You could speak to your existing mortgage provider and ask for permission to let out the property – some lenders do grant consent. If the lender refuses permission, or you would like to capital raise, you would need to arrange a new buy to let Mortgage to replace the existing Mortgage on the property.
Have an Enquiry to Discuss?
If you would like further information around your mortgage or secured loan options, the mortgage advisers at The Money Hub would be happy to help.
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DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.