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Home » Mortgages » Landlord Mortgages

Landlord mortgages for property investors

A landlord mortgage is a type of mortgage specifically designed for individuals or companies who own or want to buy rental properties. These mortgages provide financing for the purchase or refinance of a rental property, allowing landlords to expand their rental portfolio or improve existing properties.

Landlord mortgages offer a range of benefits, including flexible repayment terms, and the ability to leverage rental income to qualify for a loan. However, it’s essential for landlords to carefully consider their options and understand the specific requirements and risks associated with a landlord mortgage before making a decision. This guide will explore the common types of landlord mortgages, including how they work and the difference between operating as a limited company or in your name only.

What are the criteria for a landlord mortgage?

While each lender has their own criteria, the following factors are common, so make sure you comply with them when applying for a landlord mortgage:

  • The rental potential of the property, with lenders looking for a minimum rental yield.
  • Minimum personal income, while rental yield and income are more important factors, many lenders also consider the income and affordability levels of the landlord, some lenders (not all) may have a minimum income threshold that you need to be earning.
  • The age of the landlord, with many lenders (not all) imposing a minimum age requirement, often runs between 21 and 25. There is also likely an upper age limit; many lenders look for the applicant to have repaid the mortgage before they reach 75 to 85.
  • Credit history with a negative or questionable credit profile often results in refusals or a higher interest rate. If you do have bad credit registered you may struggle with a high street lender, however there are mortgage lenders that can help which are available through mortgage brokers.
  • The property type that landlords let and the property's location shape a lender's response to a BTL
    application, as does the type of tenant.

With these final points in mind, there is a wide range of landlord mortgages to consider, which we will now examine.

The types of mortgages landlords need to know

One of the most significant decisions a landlord makes comes before they buy a property or welcome tenants to their new home. The right mortgage is essential, and a landlord with the wrong type of mortgage might face stiff financial penalties.

Some of the most common types of mortgages for landlords include:

Buy to let mortgages: These are designed specifically for landlords looking to purchase a property to rent it out. Buy-to-let mortgages typically have higher interest rates than residential mortgages, but they may offer more flexible repayment terms and the ability to release equity from the property.

Commercial mortgages: These are loans used to purchase or refinance commercial properties, including mixed-use buildings, warehouses, offices and retail spaces. Generally the tenant will have a longer term lease in place when compared to residential buy to let properties.

Semi-commercial mortgages: As the name suggests, a semi-commercial mortgage is applicable when the property comprises both commercial and residential elements. This mortgage is also referred to as a mixed-use mortgage.

It’s important to note the ratio between commercial and residential isn’t essential; if there is any mix of residential and commercial activity, a semi-commercial mortgage is required. A typical example is a retail shop on the ground floor and a residential flat above – You could buy the complete freehold with both elements needing a semi commercial mortgage, or you could simply buy the flat above a shop, but as it is above a commercial unit your availability of lenders will be limited.

Portfolio mortgages: These allow landlords to secure financing for a portfolio of properties rather than just one. Portfolio mortgages may be more flexible and offer more favourable terms than traditional buy-to-let mortgages. Still, they may also require a larger down payment and have more stringent eligibility requirements.

Portfolio landlords should note most lenders require them to operate as a limited company to be eligible for this style of mortgage. Most lenders also look for a minimum of two years’ experience as a landlord for a portfolio mortgage.

HMO mortgages: HMO (House in Multiple Occupation) mortgages are designed for landlords who own properties rented out to multiple tenants, with shared facilities such as bathrooms and kitchens. Most lenders only provide HMO mortgages to landlords with a proven track record in letting property and you need a HMO license in place. Certain areas may have restrictions in place to limit saturation of HMO properties.

Student buy-to-let mortgages: A student buy-to-let mortgage, also classed as a HMO Mortgage, is where the lender is happy to provide finance for the property to be let to students. Only some lenders are happy to do so, so landlords must fully understand their mortgage terms and conditions so they are not in breach.

Airbnb buy to let mortgages: Similarly, an Airbnb BTL mortgage or also known as a holiday let mortgage, is aimed at landlords or investors in the short-term rental market. There are considerable risks associated with the short-term holiday market, usually reflected in higher than typical interest rates, and eligibility requirements due to the high turnover of tenants.

Local authority buy-to-let mortgages: Given the demand for local authority housing, there is an opportunity for landlords to let in this manner.

Given the wide range of mortgage options available to landlords, it is natural to feel overwhelmed. This is why it is best to speak with an expert to receive tailored information for your circumstances.

Should a landlord set up as a limited company or operate themselves?

When considering investing in property, you should get tax advice. We do not provide tax advice, however this is general information which may be of help.

There are several key differences between a UK property landlord setting up as a limited company (Special Purchase Vehicle (SPV) and operating under their name. These include:

Liability: As a limited company, the landlord is not personally liable for the debts and obligations of the company. This means that their assets, such as their home and savings, are protected if the company is sued or goes bankrupt. By contrast, a landlord operating under their own name is personally liable for all debts and obligations related to their property rental business, however some LTD Company BTL mortgage lenders may require you to put in place a personal guarantee.

Taxation: Limited companies are taxed differently than individuals. The company is taxed on its profits at the corporate tax rate, which from April 2023 will be 25%. Any profits distributed to shareholders as dividends are then taxed at the shareholder’s personal tax rate. By contrast, a landlord operating under their name is taxed on their rental income at their individual tax rate, which may be higher than the corporate tax rate.

Administration: Limited companies must comply with specific legal and administrative requirements, such as filing annual accounts and holding shareholder meetings. These requirements can be time-consuming and may require the assistance of an accountant. By contrast, a landlord operating under their name does not have these administrative requirements, however they do still need to file a personal tax return.

Funding: Limited companies may have an easier time securing financing from banks and other financial institutions because they are seen as more established and stable entities.

If you need assistance evaluating the pros and cons of operating as a limited company vs individual name ownership it is best to get advice from a property tax advisor.

Other Property Considerations with Landlord Mortgages

Construction Type – If the property is of non standard construction type such as timber framed, these mortgages are typically provided by mortgage specialist lenders available through mortgage brokers.

Buying at Auction – If you are looking to purchase a property at auction more than likely a mortgage would not be suitable due to the property condition or timeframes to complete the purchase. In this situation a client will typically use a bridging loan to secure the property and then refinance onto a buy to let landlord mortgage.

How to explore your landlord mortgage options with The Money Hub

If you are a landlord looking to arrange a BTL mortgage, help is available.

Call The Moneyhub Limited on 0203 725 5830 and speak to our highly specialised and dedicated Mortgage team or you can complete an enquiry form which will allow you to schedule a call time.

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Landlord Mortgage FAQ’s

If you are looking to buy a property these typically take 2-4 months to complete mainly due to the delays that can be caused with all the parties involved in the property chain. If you are looking to remortgage these typically take 2-3 months.

Mortgage terms can range anything from 3 years up to 30 years.

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