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Buy-to-let mortgages

Compare buy-to-let mortgages

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  • Advisers who can look at mortgage rates from across the market

  • Get an expert-recommended deal

  • They can help you apply when you're ready

What is a buy-to-let mortgage

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.

There are some key differences between buy-to-let mortgages and the standard residential mortgages that you’d use to buy your own home.

How do buy-to-let mortgages work?

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

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

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

It’s a good idea to compare buy-to-let mortgages before choosing a lender. 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.

An independent mortgage broker can help you speed up the search as they have access to most lenders on the market.

Most landlords use an interest-only mortgage, but you’ll need to have a definitive final repayment plan in place to do so. You’ll also need to decide whether a fixed-rate or variable-rate mortgage is more suited to your needs.

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.

Ready to find a buy-to-let mortgage?

Mojo Mortgages is an expert broker that can help you find a buy-to-let mortgage

How much deposit do I need for a buy-to-let mortgage?

As with any mortgage, the bigger the deposit you can afford, the better. This reduces the risk for the lender and gives you access to better interest rates.

A larger deposit also means a smaller mortgage balance, so you pay less interest overall.

The specific amount you need depends on the lender, your circumstances, and the property itself. Most lenders ask for a minimum deposit of 25-40% of the property value. But it’s possible to get a buy-to-let mortgage with a 20% deposit.

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%).

What other costs are involved in buy-to-let mortgages?

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,

You also need to pay valuation and legal fees, like any other mortgage. 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.

It’s also important to consider other costs involved with being a landlord:

  • 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

Choosing 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 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. Be sure to speak to a broker for advice if you're not sure which type of rate would best suit you.

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.

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

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