Who is eligible for a buy-to-let mortgage?
The criteria for a buy-to-let mortgage vary between lenders but are generally stricter than standard residential mortgage criteria. Usually, there's:
- A minimum deposit
- A minimum and maximum age
- A minimum rental income
- Personal income
- Homeownership status
- Credit history
- Property-specific criteria
Deposit - The deposit for buy-to-let mortgages is higher than others
Age - Lenders prefer you to be over 21 (sometimes over 25) to get a buy-to-let mortgage. There may also be upper-age limits
Rental income - Lenders calculate the loan based on how much rent (or rental yield) your property can make. Most lenders expect your property to make 25-40% more in rent than your monthly mortgage payments cost.
Minimum Income - The loan isn't based directly on your income, but lenders usually want you to have a backup income. Some lenders, not all, prefer you earn £25,000 or more a year
Homeownership status - Most lenders prefer that you already own a home before buying an investment property. It's possible to get a buy-to-let as a first-time-buyer, but it's more difficult
Credit score - You’ll have a better chance of approval and access to better rates with a good credit score
Property-specific criteria - 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
What our expert says
Buy-to-let mortgages FAQ
Do I have to pay tax on a buy-to-let mortgage?
Yes, there are various taxes to pay, including:
- A 3% stamp duty charge 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
What is the difference between a buy-to-let and a residential mortgage?
The main difference is that you can't live in a buy-to-let property or let out a property to tenants if it has a residential mortgage. Both sets of terms and conditions state that the mortgage is for the specific use intended only.
Finally, buy-to-let mortgages are calculated differently. Lenders usually base what you can borrow on the potential rental income, rather than your personal income.
How much can I borrow for a buy-to-let mortgage?
This depends on the expected rental income from the property you’re buying, so do your research. Most lenders prefer that an ARLA-registered letting agent provides you with a rental forecast.
Your financial circumstances, deposit size and credit history can also impact the loan size.
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.
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.
Learn about different mortgage types
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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