“Buy to let” is the term given to the purchase of property which is explicitly to be let.

The main benefits include:

  • Income from Rent
  • Accrual of wealth if house prices go up

In relation to obtaining mortgage funding, Lenders calculate how much they are willing to lend using a different formula than for an owner-occupied property. The majority of Lenders will base their assessment of suitability on the following two factors:

  1. Anticipated Rental income: Providers will assess the expected monthly rental income to determine the maximum loan available. The gross rental income, as confirmed by the valuer, must ordinarily cover at least 125% of the monthly mortgage payment and will be calculated using a notional (stressed rate).
  2. Personal Income: Many providers will also require the applicant to evidence a minimum level of regular income to give them some assurance you could meet mortgage payments during untenanted periods, this is usually around £25,000 per annum. However, many will not require any evidence of personal income at all, restricting such requirements for first-time buyers/landlords.

Tax

Rental income is considered and subsequently taxed in the same way as salary. However, landlords can deduct costs from the taxable portion of their rental income, and these costs can include the interest portion of their BTL mortgage repayments as well as maintenance costs on the property.

Availability

“Buy to let” funding is available to First-time buyers, First-time landlords as well as experienced investors. The Lenders offering funding to these varying types of borrower will differ as will the terms upon which they will do so. For example, there may be additional expectations for First-time buyers such as loan to value restrictions and the requirement for evidence of personal income.

Providers will also have differing criteria in relation to acceptable types of property. Houses in multiple occupation (HMO), studio flats and ex local-authority properties for example can stipulate their own further considerations.

Interest Rates

Rates on buy to let mortgage deals will typically be higher in comparison to residential mortgage products that you will have on your own home. This is due to the consideration that funding on this basis represents a greater risk to the Lender.

Deposit

The deposit needed to purchase a property specifically to be let will be higher than the requirement upon purchasing a property for owner occupation. Whilst residential mortgages can be obtained on the basis of a minimum of a 5% deposit, “Buy to let” funding will usually require an applicant to put up at least 20%-25%.

Lending charges

Buy to let mortgages will usually command higher arrangement or product fees and the variation between providers and individual products can be considerable. For this reason it is certainly worth shopping around, seeking the guidance of a mortgage broker may also be prudent.  

Term

Unlike ordinary residential funding for owner occupation, which is usually limited to being lent over a certain time period that will not allow the borrower to take the borrowing above a certain age (usually state retirement age); you can often secure a buy to let mortgage beyond your retirement age. This is due to the Lenders assessment upon your ability to service the loan, which as previously mentioned is evaluated  on the rental income received and more often than not, not your income. Of course this will vary considerably between different providers.