Buy-To-Let Mortgage Guide

Our easy-to-read buy-to-let mortgage guide will cover everything you need to know about financing a buy-to-let property.

We’re experts in buy-to-let mortgages, and we source our mortgages from the whole market. Call us today and speak to a buy-to-let expert.

Call us – 01604 212879

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BTL Mortgage Guide

Author: Darren Ferguson – Mortgage Specialist & Owner

Published: 4th May 2023

Updated: 8th November 2023

Read Time

Read Time – Approximately 10 Minutes

Our buy-to-let mortgage guide should be helpful, but it’s always best to speak with an adviser to discuss your own personal circumstances and to get the best advice. Call us on 01604 212879 should you have any questions.

Buy To Let Market Update – November 2023

The Bank of England has kept the base rate @ 5.25% for the 2nd consecutive period, following 14 rate increases in a row. Whilst this has provided some relief for borrowers, the Bank signalled that it is still too early to think about rate reductions.

Lenders are working hard to help landlords, but affordability from increased lender stress tests still proves to be an issue.

In the current climate, it’s more important than ever to speak to a qualified broker who can advise on your options. You can call us on 01604 212879 for a free buy-to-let mortgage consultation.

What is a buy-to-let property?

It’s a property that is owned with the intention to let out to a tenant, either on a  sole or multi-occupancy basis, such as an HMO. The property owner charges rent, which should be sufficient to cover any mortgage, maintenance and other ongoing costs, such as letting agent fees.

The property could be a house, flat or commercial unit, although the latter will not qualify for a standard buy-to-let mortgage and will require commercial funding.

What is a buy-to-let mortgage?

It’s a mortgage (loan) secured against the property to be let out. As it’s secured against the property, the lender could repossess the property if the mortgage is not paid.

As the property is to be let, and the mortgage amount is based on rental income rather than personal income, this is deemed a higher risk by lenders, and buy-to-let mortgage rates will therefore be higher than standard residential mortgage rates.

Buy-to-Let Interest Rates

The interest rates on a buy-to-let mortgage will depend on several factors, most typically:

  • The loan to value (LTV)
  • Whether the property is to be held in a personal name or a limited company
  • Your experience as a landlord
  • The type of property (standard buy-to-let, HMO, Holiday Let, for example)
  • The tenant profile
  • Your credit profile.

Your credit profile can have the most significant impact on the rate you pay. Several buy-to-let lenders can offer buy-to-let mortgages for applicants with bad credit.

HMO and Multi-Unit Block properties will attract higher rates. You can view current HMO Mortgage rates here.

Who can apply for a BTL Mortgage?

The following can apply for a buy-to-let mortgage:

 

  • Individuals (UK, EU and other foreign nationals living in the UK)
  • Limited Companies (UK Incorporated)
  • PLC (UK Incorporated)
  • LLP (UK Incorporated)
  • EX Pats

Types of Buy-To-Let Property

Buy-to-let properties come in many different forms, and you’ll need a specific type of mortgage dependent upon how the property is let. 

Standard Buy To Let

The most common type of buy-to-let and where the property is let on a single standard tenancy agreement to an individual or family unit.

This guide is aimed at standard buy to let borrowing. 

House of Multiple Occupation (HMO)

A HMO is a property that is let to multiple tenants, typically 3 or more. The tenants will have their own bedroom, but will share common facilities such as the kitchen, bathroom and living space. This will require a specific HMO mortgage and you can find out more in our guide to hmo mortgages.

Multi-Unit Freehold Block (MUFB)

A Multi-Unit block is a property comprised of self-contained units within the freehold of the building. Each unit will have its living accommodation and utilities. As per an HMO property, a Multi-Unit block will require a mortgage tailored explicitly for the property type and will not fit on a standard buy-to-let basis. 

Holiday Let

Buy-to-let properties are typically let on an assured shorthold tenancy (AST) for 6 to 12 months.

A holiday let property, which could also include air bnb type properties, is let on a short-term basis, perhaps for as little as a couple of nights only. It’s a short-term let, with a much higher level of management required, and will need to be financed with a holiday let mortgage.

Call us on 01604 212879 for a no obligation buy to let mortgage review

Buy-To-Let Mortgage Criteria

Lending criteria for buy-to-let mortgages will vary from lender to lender, but we cover the basics below:

Be an existing property owner

This is the main criteria point for most buy-to-let lenders. You will need to be an existing property owner, which could be your primary residence or another buy-to-let property.

Being an existing property owner gives the lender some assurance that the property to be purchased will be let out and not occupied by the purchaser. A common form of mortgage fraud is where an applicant states that the property is to be let but actually intends to occupy the property, typically because their income is insufficient to get a standard residential mortgage.

BTL mortgage options for a first-time buyer will be limited, but there are lenders that can provide first-time buyers with buy-to-let mortgages.

Employment

You will typically need to be in employment of some sort, whether employed or self-employed. If you are self-employed, then most lenders will require you to have at least 12 months trading history, but there are exceptions to this.

Credit Profile

Whilst some specialist buy-to-let lenders can offer buy-to-let mortgages with bad credit, most lenders, to get the best rates, will require a clean credit profile. 

 

Will I need a minimum income for a buy-to-let mortgage?

No, there are a good number of buy-to-let lenders that do not have any minimum income requirement. However, lenders will still assess whether they feel the loan is affordable. If, for example, you have a low income with a high level of unsecured debt in the background, this may still cause an issue. 

You may benefit from a better rate with a lender that has a minimum income requirement, and those lenders that do have a minimum income requirement will typically require the income to be in the region of £15,000 to £25,000, dependent upon the lender.

What is the minimum deposit for a buy-to-let mortgage?

In the current market, you can get a buy-to-let mortgage with a minimum deposit of 15%, but most lenders will require a minimum of 25%, with the best rates typically offered with a 40% deposit. 

The deposit for a buy-to-let mortgage will have a significant bearing on affordability. The lower the deposit, the higher the rate and the harsher the stress test applied to the rental income. So, although low-deposit buy-to-let mortgages are available, the rental income generally needs to be very strong to qualify. 

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How do i apply?

Applying for a buy-to-let mortgage is simple, and we can typically get a decision in principle the same day. Call us today on 01604 212879 to see how we can help.

Should I purchase a buy-to-let in my personal name or a Limited Company?

This depends on your own situation, and it would be best to get advice from a suitably qualified tax specialist.

There are some advantages to purchasing a  buy-to-let property in a limited company, especially if you fall into the higher rate tax bracket or expect the rental income from the property to push you into the higher rate bracket.

 

Man standing at crossroads

Buying in your personal name

Income Tax – When you purchase a buy to let in your personal name, you will pay income tax on the rent, at the tax rate you fall into, which for a higher rate taxpayer could mean 40% tax on the rental income.

Mortgage Options – You will have more options available for buying in your personal name, and the rates will be lower than through a limited company. Still, any saving may be offset by the additional tax you pay.

Capital Gains Tax (CGT) – If and when you come to sell the property you will be subject to tax on any gain made (the difference between what you bought it for and what you sell it for). Limited companies are not subject to CGT. 

Buying in a Limited Company

Tax Savings– when you buy in a limited company, the rental income will be taxed at corporation tax rates, which could offer savings. 

Mortgage Options – Not all lenders offer limited company buy-to-let mortgages, and it tends to be more specialist lenders that do. Rates will also be higher than personal borrowing, but the tax savings could still make it worthwhile.

Set Up Costs – You’ll have additional costs, such as accountancy costs, costs of setting up the company, business banking and lender arrangement fees may also be higher. 

How is affordability calculated for a buy-to-let mortgage?

Calculating affordability for a buy-to-let mortgage can be complex. Affordability can vary considerably from one lender to the next, and advice should always be sought from an adviser.

There are some key considerations to calculate buy-to-let affordability:

  • Is the property to be owned personally or in a limited company?
  • If it is to be held personally, are any applicants a basic or higher-rate taxpayer?
  • If they are a basic rate taxpayer, will the rental income from the new property push them into the higher rate bracket?
  • Is the applicant applying for a product that is fixed for 5 years or more? (if less than 5 years, then a harsher stress test will be used)
  • What is the actual interest rate? (this could be the stress rate the lender applies)
  • What is the property type? (standard, HMO, Multi-Unit Block, all of which will have different stress rates)
  • Finally, what is the rental income?

With up to 100 different lenders and thousands of products, buy-to-let affordability is unfortunately not a one-size-fits-all-all. It can take even a good broker some time to calculate affordability for different options.

Buy-to-Let Stress Testing

Depending upon the above factors, lenders will require the rental income to be at least 125% to 145% of the monthly mortgage payment, so if the mortgage payment is £1000pcm, the rental income must be a minimum of £1250pcm to £1450pcm.

If the property is to be held in a limited company, the requirement is 125%. If the property is to be held in a personal name, the requirement will typically be 125% for basic rate taxpayers and 145% for higher rate and additional rate taxpayers.

What if the rental income is not enough to achieve the loan amount required?

Affordability for a buy-to-let mortgage is typically based solely on the rental income from the property. When the rental income alone is insufficient to achieve the desired loan amount, some lenders can consider a landlord’s earned income from other employment they might have, known as ‘Top Slicing’.

Top slicing can help to top up the loan to achieve the amount required. Only a few lenders offer this facility; with some, you’ll need a minimum earned income to qualify. If you’d like to explore top slicing, call us on 01604 212879 to learn more.

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Why do business with us?

All buy-to-let lenders have different criteria you need to meet. We’ll help point you in the right direction to help ensure your application moves smoothly and efficiently.

Can I get an interest-only buy-to-let mortgage?

Yes, you can. Most buy-to-let mortgages are typically arranged on an interest-only basis, and some lenders only offer buy-to-let mortgages on an interest-only basis.

An interest-only buy-to-let mortgage helps keep your payments lower. However, as you are only paying the interest on the loan, it’s important to understand that you will still owe the total amount borrowed at the end of the mortgage term, so a suitable repayment plan should be considered, which with a buy-to-let property is typically the sale of the property.

What are the fees with a buy-to-let mortgage?

Fees for buy-to-let mortgages will generally be higher than those of a standard homeowner mortgage, and this will be especially so with specialist buy-to-let lenders.

Application Fee

Generally paid at the point of application, is a fee charged for reviewing the application and is usually non-refundable. This will typically be in the range of £100 to £200. (not all lenders will charge this)

Valuation Fee

Paid at the point of application and is the fee charged by the lender for a standard mortgage survey. The price payable is dependent upon the value of the property. Some products may come with a free valuation

Lender Arrangement Fee

The main fee the lender will charge and can be anything from a flat fee (typically £995) to a percentage of the loan amount (typically 1% to 2%). This fee can either be paid upfront or added to the loan.

Legal Fees

As well as your own, sometimes you’ll also have to cover the costs of the lender’s legal fees. Always check with your adviser for details of any lender legal fees payable.

man with calculator adding fees up

Stamp Duty & 2nd Properties

Stamp duty will typically be your highest cost when you purchase a buy-to-let property, primarily due to the 2nd property surcharge that came into effect in 2015. This surcharge is payable on all additional properties and will be a minimum of 3% of the property value in addition to the standard stamp duty payable.

View the current stamp duty rates.

Stamp Duty Rates

  • up to £250,000 0% 0%
  • £250,001 to £925,000 5% 5%
  • £925,001 to £1.5 million 10% 10%
  • Over £1.5 million 12% 12%

Total Rates For 2nd Property

(This is the total percentage payable on the basis the property will be a 2nd property to be owned)

  • up to £250,000 3% 3%
  • £250,001 to £925,000 8% 8%
  • £925,001 to £1.5 million 13% 13%
  • Over £1.5 million 15% 15%
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Get a Decision In Principle!

If you have made an offer, the selling agent will first want to see your agreement in principle. Ensure you are in the best position to make the offer and ask for a free DIP today!

How do I compare buy-to-let mortgage deals?

Well, of course, we would say speak to a buy-to-let adviser as it’s what they do, day in, day out. You can compare deals through price comparison sites, but all they tell you is the rate.

A price comparison site will not tell you if you meet the lender’s criteria or whether the loan amount is achievable (refer to our affordability section). This could mean applying to a lender that then declines the application, resulting in another search needed with a new lender.

It makes sense to speak to an expert as it will save you time and money. Unlike many other brokers, we don’t charge a fee for our services.

Comparing BTL mortgage deals – when an adviser compares mortgage deals, they will typically consider the deal’s cost over the initial product term, including any fees that might be payable.

For example, if it’s a 2-year fixed rate and has a £999 fee, they’ll calculate the cost of the repayments over the 2 years, plus the £999 and any other associated fees, for an overall cost.

Lenders often advertise ‘headline’ rates that offer a low interest rate but come with a high arrangement fee. When you compare the cost of this deal over the product term, it is often higher than that of a product that might come with a slightly higher rate but with a lower arrangement fee and would be a better choice.

Also, as most people tend to add lender arrangement fees to the loan, which they will then pay interest on for the term of the loan, it makes sense to try and keep any added fees to a minimum.

How do I apply for a buy-to-let mortgage?

The application process for a buy-to-let mortgage is much the same as any other type of mortgage. Below we outline the typical steps involved.

Speak to a buy-to-let expert

An adviser will seek to understand what it is you are looking to achieve. They’ll need to know information about:

 

  • The property to be purchased, such as the purchase price, the rental income, and the type of property
  • Details of any buy-to-let properties you currently own
  • Your employment situation
  • Your credit profile and other debt you might have
  • What deposit funds you have
  • How you plan on purchasing the property (personal or limited company)

Search the market

Once the adviser has a good understanding of what you are looking to achieve, they will then search the market and present you with some options. These options will take into account:

 

  • The rental income and how this affects affordability from lender to lender. 
  • Your product preference
  • Any arrangement fees the lenders will charge
  • Your situation and how this fits with different lenders’ criteria. 

Get a decision in principle

Once a product is agreed upon, the next step is to get a decision in principle from the lender of choice. A decision in principle, is effectively just a credit check, with a decision to lend based on the result of that credit check and the numbers supplied, such as the purchase price, loan amount required and the rental income.

A full acceptance by the lender is then subject to an assessment of supporting documentation and the property valuation.

What documents will I need to supply?

Typically, we will need the following documents to process a buy-to-let mortgage application:

  • Proof of Identity (passport or driver’s license)
  • Proof of address (a recent utility bill dated within the last three months)
  • Proof of income – if you are employed, then the last three months’ payslips, and if you are self-employed, then the previous two years’ tax calculations with corresponding tax year overviews.
  • Last three months’ bank statements

Document requirements will vary from lender to lender. 

Call us on 01604 212879 for a no obligation buy to let mortgage review

Read more about buy-to-let mortgages with bad credit

Learn more about Let-To-Buy Mortgages

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Frequently Asked Questions

Can a first time buyer get a buy to let mortgage?

Yes, but the options are limited, and some lenders will still base the lending on personal affordability rather than rental income. There are other lenders we have access to who won’t base on personal affordability, but the rates will be higher.

Can i get a buy to let mortgage if i am unemployed?

Yes, it’s possible with 1 or 2 specialist lenders. This will be reflected in higher rates and potentially lower loan to values.

Can i let my property to a family member?

Yes, but this will be classed as a regulated buy-to-let. Typically buy to let mortgages are unregulated, and most lenders will not offer regulated buy-to-let mortgages. There are a small number of lenders that do provide regulated mortgages; call us today to discuss.

Can i live in my buy to let property?

No, buy-to-let mortgages are designed for properties to be let, and affordability is based on rental income. If you own a residential property that is your main home, it is possible to let one of the rooms out with specific lenders.

Can i let my current property and buy a new one?

Yes, this would be called a ‘let to buy mortgage. It’s possible that you can raise funds against your current home to fund the deposit of a new home to live in. Most lenders will offer let-to-buy mortgages, typically needing a simultaneous onward purchase.

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

We have several lenders that will lend to applicants with bad credit scores. It will depend on the severity of the bad credit, so it’s best to get an up-to-date copy of your credit report and then call us to discuss further.

Can I get a buy-to-let mortgage if I am self-employed?

Yes, all lenders will lend to self-employed applicants. However, some may need you to have been trading for a minimum period before they do so. We also have lenders who can help where applicants have just gone self-employed. 

Can I get a buy-to-let mortgage if I am retired?

Yes, we also have several lenders that have no maximum age.

Can i get a buy-to-let mortgage if I own multiple properties?

If you own more than four buy-to-let properties or are buying your 4th buy to let property, you’ll typically be classed a ‘portfolio’ landlord. You will therefore be subject to enhanced underwriting by the lenders. Call us today, and we’ll talk you through this. 

Thanks for reading our buy-to-let mortgage guide!