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Buy-to-let mortgages

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How do buy-to-let mortgages work?

A buy-to-let mortgage is used to buy properties that are rented out to tenants. Buyers using this type of mortgage are investors who don't plan to live in the property themselves.

With a buy-to-let mortgage, just like a residential mortgage, you provide a deposit and borrow the remaining money from a mortgage lender. You also still repay the mortgage over a defined term.

But in some ways, it works differently from a mortgage you'd use to buy your own home. For example:

  • Deposit size - You need a much bigger deposit for buy-to-let. This varies by lender but is usually 20-40% of the property value
  • Repayment type - Most buy-to-lets are interest-only mortgages, but it’s possible to get a repayment version from some lenders
  • Repayment vehicle - If you opt for interest-only, the lender will expect you to have a repayment plan - also known as a repayment vehicle. This could be selling the property at the end of the mortgage, or some form of investment, to pay back the final balance. Different lenders accept different repayment plans
  • Not covered by the FCA - The Financial Conduct Authority (FCA) doesn't regulate most buy-to-let mortgages. Except if you’re buying property purely to rent to your family - this is known as a regulated buy-to-let mortgage
  • Borrowing based on rental income - Lenders calculate how much you can borrow based on how much you could make by renting the property out. When buying your own home, borrowing is usually just based on your income
  • Stricter lending criteria - Because buy-to-let properties are an investment, they’re seen as commercial transactions. This means lenders are more cautious and often have stricter criteria to meet

Am I eligible for a buy-to-let mortgage?

You're eligible if:

  • You have a higher deposit (between 25-40%)
  • You're over the age of 21 (but some lenders prefer over 25)
  • Your property will make 25-40% more in rent than your monthly mortgage payments
  • You have a backup income, some lenders prefer you to earn at least £25,000
  • You've already owned a home before. However, it is possible to get a buy-to-let as a first-time buyer but lenders are less willing to accept this
  • You have good credit score so better chance of approval and access to better rates
  • You have the right kind of property. Some lenders won’t allow houses of multiple occupancy (HMO) properties or certain types of tenants. Most high-street lenders also limit the total number of buy-to-let properties you can have to 4

The criteria for a buy-to-let mortgage vary between lenders but are generally stricter than standard residential mortgage criteria.

Buy-to-let mortgages with Mojo

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Just answer some questions about your situation and let Mojo's expert advisors guide you to a mortgage tailored to your needs. And the best part of it all is, it’s completely free (yes, really!).

With access to lenders across the whole of the market, Mojo advisors strive to save you money and find your best mortgage rate.

 

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What costs are involved in a buy-to-let mortgage?

  • Monthly repayments - The interest rates and application fees are typically higher for a buy-to-let mortgage than standard residential mortgages. To keep business costs lower, landlords often use an interest-only mortgage to reduce their monthly repayments
  • Valuation and legal fees - like with any other mortgage, you need to pay these extra fees
  • Stamp duty - You typically pay more stamp duty on additional property purchases if you already own one - including your main home. The extra amount varies depending on which part of the UK you live in
  • Tax - Whether you’re an individual or a limited company, you pay tax on rental income. If you sell the property you also pay capital gains tax on profits
  • Insurance - Tenants usually pay contents insurance, but buildings insurance is the landlord's responsibility. It’s also a good idea to have landlord’s insurance, which covers mortgage payments when you have no tenants or tenants refusing to pay
  • Management fees - If you use a rental management or letting service, their fee is usually around 20-30% of your rental income
  • Maintenance - You're responsible for keeping the property in good repair and replacing broken fixtures and fittings
  • Safety compliance - You're responsible for ensuring safety regulations are met, like gas safety certificates and smoke alarms. Make sure to research landlord regulatory responsibilities

Why are interest rates higher for a buy-to-let mortgage?

Interest rates are higher for buy-to-let properties than residential properties because they're seen as higher-risk for lenders.

There are moments where the property may be vacant, or tenants may miss rental payments. So the higher interest rate accounts for this extra risk.

What tax do I have to pay on a buy-to-let mortgage?

There are various taxes to pay, including:

  • Stamp duty - A 3% stamp duty surcharge will apply in England and Northern Ireland if it's not your first and only property. In Scotland Land and Buildings Transaction Tax (LBTT) - the equivalent of stamp duty has a 6% surcharge for additional dwellings. In Wales, Land Transaction Tax (LTT) is payable at an additional 4% on any second properties - including buy-to-lets.
  • Rental income - individual and business landlords both pay tax on all rental income
  • Capital gains tax - payable on any profits made when you sell the property

How to get the best buy-to-let mortgage deal

To get the best buy-to-let mortgage, it’s a good idea to compare deals across the market. Criteria and terms for each mortgage product vary, so you may be able to borrow more or pay less interest, with one lender than another.

If you own multiple buy-to-let properties, you could consider a portfolio mortgage, which lets you keep all of the mortgages in one account.

A mortgage broker, like Mojo Mortgages, can help you speed up the search as they have access to most lenders on the market.

 

What else should I consider before getting a buy-to-let mortgage?

Here's some things you should consider before buying a buy-to-let investment property:

  • Full tax implications - Take certified tax advice based on how you plan to operate as a landlord (individually or as a limited company)
  • Management style - Think about whether you’d prefer to manage everything yourself or pay an agency to let out/manage the property
  • Backup plan - Your property may have periods of vacancy, but you still need to pay your mortgage. Always have a plan ready for this situation, such as savings or landlord’s insurance
  • Not regulated - Unless you’re renting your property to family, your mortgage won’t be regulated by the FCA. This is because it’s classed as a commercial product, so less consumer protection is available

What happens at the end of my interest-only buy-to-let mortgage

At the end of the mortgage term you'll need to repay the full amount of your mortgage.

There might be some circumstances where the lender allows you to extend the term of your mortgage if you can't repay the loan on time. But generally you're expected to commit to repaying by end of term, based on the repayment plan you've told the lender.

What our expert says

"Some landlords find that short variable-rate deals help them make the most of their buy-to-let mortgages, and maximise their income in the short term. Whereas some landlords look for more long term stability. Be sure to speak to a broker for advice if you're not sure which type of rate would best suit you."
Claire Flynn, Senior Content Editor at Mojo
Senior Content Editor | Mojo, Mortgages Expert | Confused.com Mojo logo

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Learn about different mortgage types

Tips & guides on buy-to-let mortgages

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Need more help?

Should I use a limited company for buy-to-let?

There are certain tax benefits to operating your buy-to-let rental property or portfolio as a limited company. For example, independent landlords can’t claim mortgage interest against their tax return, but limited company landlords can.

It’s important to take advice from a qualified tax adviser, as the best plan for you will depend on your individual circumstances.

Can you switch a residential mortgage to a buy to let mortgage?

Yes, it’s usually possible to remortgage your residential mortgage to a buy-to-let one. If this is not possible with your existing lender, then other lenders may be able to help.

You’ll no longer be able to live in the property yourself if you change the mortgage to a buy-to-let, even temporarily.

Can I get a buy-to-let mortgage as a first-time buyer?

It is possible, but you'll have a much harder time getting accepted for this than if you got a standard first-time buyer mortgage.

Most buy-to-let lenders prefer you to have had the experience of already owning a home before. But it's worth speaking to a mortgage broker, like Mojo Mortgages, who can help you find the best mortgage for you.

Can I get a buy-to-let mortgage with poor credit?

It's possible. If you’re a riskier borrower due to low income, poor credit, or the type of property you’re buying, you’re more likely to need a larger deposit (30-40%).

Mojo Mortgages can offer advice on what's right for your individual circumstances.

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Page last reviewed: 15 December 2023

Reviewed by: Claire Flynn

YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

The Financial Conduct Authority does not regulate mortgages for commercial or investment buy-to-let properties. 

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