Elevate Financial Solutions is a mortgage adviser based in Kent. We have branches in both Beckenham and Bromley, offering mortgage advice in London and across the UK. Our mortgage services cover a comprehensive range of mortgage products, including buy to let mortgages.
WHAT IS A BUY TO LET MORTGAGE?
A buy to let mortgage, often abbreviated as a BTL mortgage, is a type of mortgage used by people purchasing property as an investment and not to reside in. If you want to buy a property and then rent it out to other tenants, and then use the rent to pay your mortgage and maybe make a profit, you’ll need to use a buy to let mortgage instead of a standard residential mortgage.
You might also require a BTL mortgage if you become an “accidental landlord”, which is someone who decides to start renting out their usual residential property.
BUY TO LET MORTGAGE ELIGIBILITY
Buy to Let mortgage eligibility differs widely between mortgage providers. In general, the criteria to secure a BTL mortgage is somewhat stricter, with many lenders imposing age restrictions by not lending for BTL purposes if you are younger than 25, or they will not consider you for a BTL mortgage if you earn below £25,000.
Another potential eligibility obstacle is a cap on the number of BTL properties you already own. Lenders may be less prepared to lend to landlords who already own a lot of rental properties.
BUY TO LET MORTGAGES FOR LIMITED COMPANIES
Some clients choose to buy a rental property through a limited company. This can be advantageous for lots of reasons, including tax planning. However, securing a BTL mortgage through a limited company is not always straightforward, especially if the company has just been set up.
Elevate’s professional mortgage advisers can assist with BTL mortgages for individual or limited companies. If you are considering the limited company route and want to know more, or if you already use a company as a vehicle for your rental property portfolio, we can help. Our team will explain the process and can efficiently search the market for your options.
BTL MORTGAGE TYPES
There are different types of BTL mortgages, namely:
- Fixed-rate
- Tracker
- Variable
- Interest only
Fixed-rate BTL mortgages and Interest only BTL mortgages are often preferred. The former allows the landlord to know exactly what their repayments will be, while the latter is popular because the landlord only needs to pay the mortgage's interest and the capital is paid back when the rental property is eventually sold.
INTEREST RATES FOR BUY-TO-LET MORTGAGES
In the UK, interest rates for buy-to-let mortgages are typically higher than for residential mortgages. This is because they are seen as a higher-risk investment. Interest rates will vary depending on the lender and the type of mortgage you choose. It's essential to compare different lenders and mortgage products to find the best interest rates for your needs.
HOW MUCH DEPOSIT IS REQUIRED FOR A BUY-TO-LET MORTGAGE
To secure a buy-to-let mortgage, you will typically need to have a deposit of at least 25% of the property's value. Some lenders may require a higher deposit, particularly for first-time landlords or if the rental income is not expected to cover the mortgage payments. A larger deposit can also help to secure better interest rates and lower monthly payments.
THE RISKS ASSOCIATED WITH BUY-TO-LET MORTGAGES
Investing in a buy-to-let property can be risky, particularly if you rely on rental income to cover the mortgage payments. There is no guarantee that the property will be rented out consistently or that rental income will cover the mortgage payments. Additionally, property values can fluctuate, which may impact your ability to sell the property in the future. It's essential to consider the risks associated with buy-to-let investments before deciding.
APPLYING FOR A BUY-TO-LET MORTGAGE
The process of applying for a buy-to-let mortgage in the UK is similar to applying for a residential mortgage. You will typically need to provide proof of income and employment, as well as information about the property you are planning to purchase. It's recommended to work with a mortgage adviser who can help guide you through the process and find the best mortgage products for your needs.
BUY TO LET FAQS
How does Capital Gains Tax work?
Capital Gains Tax (CGT) is a type of tax you must pay when you sell or dispose of assets. It is taxed separately from your employment income. When you sell a property that is not your home, including a property used for rental income, you must pay tax on the difference between the amount you bought it for and the amount you sell it for. The amount of tax you pay will depend on these valuations and if you are a basic rate or higher rate taxpayer.
If you plan on buying a rental property and selling it in the future, CGT is something you should consider.
What are the associated costs of BTL?
Buying a BTL property and becoming a landlord incur costs you otherwise wouldn’t have to pay when purchasing a residential property. For example, there may be premiums to pay concerning home insurance, and you’ll probably have to pay letting agent fees. Moreover, a BTL mortgage may include higher arrangement fees compared with a residential mortgage.
Are deposits different for BTL mortgages?
Mortgage lenders typically ask for a larger deposit to secure a buy to let mortgage compared to standard residential mortgages. This is due to a greater risk associated with rental properties. Banks and lenders consider tenants more of a risk than someone buying a property to live in themselves, which is why they typically require a 25% deposit at least.
What is Stamp Duty?
Stamp Duty is a land tax you must pay when purchasing a property. You will be subject to Stamp Duty whether you buy a residential home or a BTL property. If your rental property costs more than £40,000, you will need to pay an additional 3% of Stamp Duty, but some exemptions may apply.
Is there still good availability of interest only buy to let mortgages?
Interest-only mortgages are becoming scarce due to Financial Conduct Authority's (FCA) regulations from 2016. These rules require lenders to verify that borrowers have a well-defined plan to repay their mortgage at the end of the term. This poses a challenge for landlords who may not count on rental income to cover the mortgage repayment. As a result, many lenders have ceased offering interest-only mortgages, while those who still do have stricter eligibility requirements and charge higher interest rates.
WHY USE AN ADVISER TO FIND A BTL MORTGAGE?
With stricter eligibility criteria, additional fees, and the more complicated nature of these mortgages, it can be challenging to cut through the noise and know what BTL mortgage to look for – or where to look for it. To get clarity, you should consider the help of a mortgage adviser to guide you through the process. It will save you time, stress and could get you a better deal you otherwise would have missed.
CONTACT US FOR MORTGAGE ADVICE
Are you currently searching for a buy-to-let mortgage that's perfect for your investment goals? Look no further than our mortgage broker team based in Bromley and Beckenham. We have extensive experience in providing exceptional mortgage advice to clients across London.
So why wait? Contact us today to schedule a consultation with one of our mortgage advisers and take the first step towards securing your ideal buy-to-let mortgage. With our help, you'll be well on your way to achieving your investment goals and building a brighter financial future.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST FORMS OF BUY TO LET MORTGAGE.
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