Everything you need to know
Dom Beer and Chris Beer
By using a buy-to-let mortgage you are able to invest in a property that you are able to rent out for an additional income. It is worth noting that property investment isn’t always plane sailing and there are numerous considerations you will need to make before making your investment.
What are buy-to-let mortgages?
If you are buying a home that you will be renting out to tenants, you will not be able to use a standard residential mortgage. If you do not have the funds to buy the premises outright, and you need a mortgage, you will need to use a buy-to-let mortgage. Buy-to-let mortgages are considered as mid to long-term investments.
The mechanics of buy-to-let mortgages are similar to those of a standard residential mortgage; however, there are some variations between the two including affordability and eligibility. We can offer friendly buy-to-let mortgage advice that will provide you with the additional understanding you need.
How do buy-to-let mortgages work?
The idea of having more than one property is certainly not a new one. Additional properties can be used for second homes, holiday lets or for buy-to-let. One of the major decisions you will need to make is choosing between either a repayment or interest-only mortgage.
Although there are a wide range of different types of buy-to-let mortgages, including tracker, fixed, variable, discount or capped interest rate, you should be mindful that most buy-to-let mortgages are interest only.
What is an interest-only buy-to-let mortgage?
Compared to a repayment mortgage, the monthly payments for a buy-to-let mortgage are usually less, which is perfect for those looking to keep monthly expenditure to a minimum; however, as soon as the interest-only buy-to-let mortgage comes to an end you will then need to pay off the property’s cost at the time of purchase.
Most owners will be able to do this by selling their property; however, this can be simpler said than done. In some cases, the value of the property may decrease meaning you will need to fund the remaining part of the debt. This could be due to a range of factors including negative changes in the local area, potential structural issues coming to light, or market values dropping; therefore, it is vital that you have a long-term plan on how you will be paying off the loan or how you will refinance once the mortgage term concludes.
We at Beerstone can offer buy-to-let mortgage advice to help you prepare for the end of your mortgage term.
What is a repayment buy-to-let mortgage?
In comparison to the interest-only option, a buy-to-let mortgage will, in general, have higher monthly payments; however, once your mortgage term concludes you will have paid off the full amount. This then opens up new opportunity to continue renting the property while not having any of the income being used towards the mortgage. Also, you could potentially sell the property and then keep the full sale amount.
As repayment buy-to-let mortgages have higher costs, it could mean that you need to be careful in property selection to ensure that you are able to cover the costs through rent.
Do I need a deposit with a buy-to-let mortgage?
Yes, you will need a deposit for a buy-to-let mortgage. The minimum deposit amount can vary depending on a range of different factors. Generally, for a buy-to-let mortgage it will be around 25% of the value of the property, but it can range between 20-40%; therefore, if you are looking at a property worth £300,000 for example, you will most likely need a deposit range between £60,000 to £120,000.
What amount can I borrow using a buy-to-let mortgage?
The amount that you can borrow will depend on a range of different factors, primarily the expected rental income of the property you are planning to buy; therefore, it is vital that you discuss with local letting agents how much similar properties are fetching. We would advise speaking to various agents to get a better understanding of prices.
When deciding whether to provide a mortgage, lenders will compare the expected rental income to the amount the mortgage repayments will cost. Generally, lenders will expect the monthly income of the property to be 125% of the monthly mortgage repayments. The higher the rent you are able to obtain, the higher value mortgage you could potentially receive. If you are unsure on the amount that you can borrow then why not talk to our friendly team at Beerstone? We will be able to offer helpful buy-to-let mortgage advice that will simplify the whole process.
Will I be eligible for a buy-to-let mortgage?
There are a range of different criteria that you will need to meet in order to be eligible.
Eligibility
A good credit rating
Earn over £25,000 per annum
Meet age criteria. Different lenders have different upper age limits so that when your mortgage ends you are not over 70 or 75 years old.
Have no outstanding mortgage or owning your own home outright
First-time buyers
For those who are wanting to get onto the property market, but struggle to in their local area due to high property prices, then buying a buy-to-let property elsewhere could be a perfect way to start.
First-time buyers should be aware about:
The best deals come with bigger deposits due to requiring a less substantial mortgage.
First-time buyers do not qualify for no stamp duty from first-time buyer relief if buying a buy-to-let property.
Once you have a buy-to-let mortgage, it will make getting a mortgage for a residential home for yourself harder while there is outstanding debt.
If you keep your buy-to-let property when you go on to buy a property to live in, you will need to pay the buy-to-let/second home surcharge.
Second homes
If you are planning on buying a second home for just personal use as a holiday home, then you will need a second home mortgage. If, however you are planning on letting it out as well as using it as a second home then you will need a special holiday let mortgage. Our team will be able to provide you expert second home and buy-to-let mortgage advice to ensure you get a mortgage that suits your needs.
House in Multiple Occupation
Another option you could look at is a House in Multiple Occupation (HMO). Our experts will be able to talk you through this option in more detail.
What are the differences between buy-to-let and residential mortgages?
There are a range of different factors that vary between buy-to-let and residential mortgages including:
Residential mortgages are generally cheaper
Buy-to-let mortgages will usually have higher interest rates and product fees
Additional stamp duty for a second property that isn’t your main residence.
Buy-to-let requires a higher deposit with arrangements fees of up to 3.5% of the property’s value.
What buy-to-let deals are available and how can I get the best rate?
Buy-to-let mortgages are available from a wide selection of different lenders, including most big banks and some specialist lenders; therefore, going for the first lender you find will most likely mean you are not getting the best deal for you. Our buy-to-let mortgage advice includes helping you find buy-to-let mortgage deals for your needs.
We will be able to help you decide on the optimum deposit for your situation to allow for the best return on investment, as well as helping decide on the length of fixed rate cashback mortgages.
When looking at buy-to-let deals, you will find that arrangement fees tend to be higher. This can mean that the cheaper initial rate can be quickly outweighed by the higher arrangement fees.
Are buy-to-let mortgages still worthwhile?
Over recent years there have been various changes that have negatively impacted on the profitability of second homes, which include alterations to tax laws, stamp duty on second homes and mortgage interest relief; however, the changes don’t necessarily mean that there is not still money to be made.
What steps to take to secure a buy-to-let mortgage?
Before you even make the first step in securing a mortgage, it is essential that you work out if a buy-to-let mortgage is a sound investment for you. There are various implications that you will need to consider including tax. A buy-to-let property is an investment, which means that although the aim is to make money, you could still potentially lose money too. You will also be accountable for ensuring the property meets industry standards and that the tenant is kept happy.
Once you have decided that a buy-to-let mortgage is for you, it is time to take some simple steps:
- Find a property that you can afford, will be easy to find a tenant for, and will likely create a profit.
- Speak with our team at Beerstone for expert buy-to-let mortgage advice to find what options are open to you.
- Work with us to find a suitable lender that will allow you to put together a mortgage in principle (MIP) or agreement in principle (AIP) so you know how much you can borrow.
- Put in an offer for a suitable property.
- Begin the mortgage application while working with your solicitor to carry out the necessary surveys, searches and contracts.
- When it comes time to remortgage your buy-to-let property, you will need to work with your solicitor to move your existing mortgage to a new lender. At Beerstone, we are able to offer expert buy-to-let mortgage advice including for remortgaging.
How does remortgaging for buy-to-let properties work?
Many of those who secure a buy-to-let mortgage do so by using the equity on their first property for deposit for the second.
One option you could utilise is choosing a full remortgage. For a full remortgage you would pay off your first buy-to-let property and then replace it with a new property. Alternatively, you could explore the option of a second charge that would use any equity you have in property as security for a different loan. For those who own over three properties, you could potentially look at a portfolio mortgage, which will put all the properties into one easier to manage loan.
Can I get better buy-to-let rates using a portfolio mortgage?
If you have numerous properties, you could potentially remortgage each of them into a portfolio mortgage, which can help you find a better deal, as well as being easier to manage. We are able to offer buy-to-let mortgage advice on a range of different products including portfolio mortgages.
Will I need specialist insurance as a landlord?
Landlords are required to have specialist insurance as usual home insurance does not cover buy-to-let properties. As with normal home insurance, landlord insurance does cover fire, flooding and subsidence, but also additionally covers against potential damage that tenants cause to the property, loss of rental income, emergency repairs, and liability for if tenants make a claim against you. For those with a property portfolio, you may be able to get a single policy for all your properties.
Applying for your mortgage
Ready to apply for your mortgage? We are here to help with expert buy-to-let mortgage advice.
We are also able to help with mortgages for first-time buyers, if you are looking to remortgage, or if you are just looking for a better deal.
If you are wanting to find our more, speak with our friendly team to arrange an appointment today.
We can also help with:
Your home/property may be repossessed if you do not keep up repayments on your mortgage.
About Beerstone
Beerstone Financial Services was established in 1996 by Chris Beer, our Founding Director, who still plays a key role in the company and ensures we maintain the best service.
Latest Posts
Explore some of our latest posts and useful insights for industry experts.
Beerstone Financial Services was established in 1996 by Chris Beer, our Director, who still oversees the company and ensures we maintain the best service.
In total we have over 30 years of experience in financial services working in a range of environments so you can be sure that your situation is in experienced hands.
Speak to our team
Visit our offices: 2 Southernhay West, Exeter, EX1 1JG
Beerstone Financial Services Ltd (542704) is an Appointed Representative of BrokerSync Ltd, which is authorised and regulated by the Financial Conduct Authority (1031981).
There may be a fee for Mortgage Advice. The precise amount will depend upon your circumstances and will be agreed upon following your initial meeting.
Investments, Pensions, Wills, Trusts, PMI and Estate Planning will be referred to our authorised third-party providers. Beerstone Financial Services Ltd and BrokerSync Ltd are not responsible for any advice received from the third-party providers.
Investments, Pensions, Wills, Trusts, PMI and Estate Planning will be referred to our authorised third-party providers. ABC Ltd and BrokerSync Ltd are not responsible for any advice received from the third-party providers.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Conveyancing, Wills, and some forms of Buy-to-let Mortgages and Commercial Mortgages are not regulated by the Financial Conduct Authority.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured against it.'