Buy-to-let mortgages made simple

Buy-to-let mortgages, sometimes known as buy-to-let loans, work like a standard mortgage in many ways, with the borrower agreeing to make repayments over an agreed term and with an agreement on how the interest will be determined. But, lenders calculate if you can afford a buy-to-let mortgage differently when processing buy-to-let mortgage applications compared to ones for owner-occupied properties.

For example, instead of just looking at your income to determine borrowing, lenders will also look at the rental income the property could generate.

At Loan.co.uk we offer buy-to-let mortgages starting at as little as £5,000 right up to £5 million. The amount you could borrow will depend on your needs and your individual circumstances.

Yes, you will need a deposit for a buy-to-let mortgage. The minimum deposit for a buy-to-let is typically 25% of the property’s value, but it can vary depending on the lender. Some will require a deposit of 15%, but others will need up to 40%.

Lenders will look at your:

1. Personal gross income.
   This is how much you earn before any taxes are deducted. This may need to be a minimum of £25,000, especially for first-time landlords, separate to the money brought in by the rent. In some cases, lenders will accept £0 personal income. For example, a professional BTL landlord shows £0 income or a loss on tax return but actually has income / deposit for another property.
2. Credit record.
   Lenders will need to see a summary of how you’ve been handling credit.
3. Homeowner status.
   Most lenders require prospective landlords to be homeowners and have lived in the property for a minimum amount of time (often six months).
4. Residency.
   Lenders will often require you to be resident in the UK to be able to offer you a buy-to-let mortgage.
5. Age.
   Lenders often impose a minimum age of 25 years and a maximum age of 70, but this maximum age varies depending on the lender – some allow the borrower to be up to 115 years old at the end of the mortgage.
6. Existing number of buy-to-let mortgages.
   You can have multiple buy-to-let properties, but some lenders are cautious when it comes to multiple buy-to-let mortgages. The number of loans available can vary between lenders. Some don’t impose any limits (as long as you can make the repayments), but for others the limit is three or four buy-to-let mortgages per landlord. Alternatively, lenders might cap the total borrowing amount, usually at around £2 million.If you have more than three buy-to-let properties, you qualify as a ‘portfolio landlord’. That means that all of your properties are considered when you apply for a new loan. So, any underperforming properties could limit your loan options. If you’re interested in setting-up a property portfolio of BTLs, consider setting up a Special Purpose Vehicle (SPV). This is a limited company that specialises in buying and renting property. Lenders will also look at the property’s eligibility. They will consider its:1. Location.
   Lenders require that the property is in the UK, but there can be further restrictions applied (such as not lending on properties in certain postcodes in remote parts of Scotland).
   2. Minimum valuation.
   The lender will only offer on properties valued above a certain price. Usually the minimum is around the £40,000 to £50,000 mark but can be up to £90,000 or £100,000.
   3. Type.
   Some properties (such as former social housing or studio flats) can be harder to secure loans for.
   4. Construction.
   Some lenders consider properties built using non-standard materials (not brick or stone walls, not a slate or tiled roof) to be of a higher risk.
   5. Expected rental income.
   Lenders require that the rental income will cover the loan repayments with a buffer to cover any other costs. To work this out, the lender applies a rent to interest (RTI) calculation or interest cover ratio (ICR). The amounts vary between mortgages and lenders, but usually the rent must cover the mortgage payments payment stressed at 145% of an assumed rate of 5.5%. Some lenders can go as low as 125% of pay rate.

There are two main options with a buy-to-let mortgage; interest only or repayment.

1. Interest-only loans – these only repay the interest every month and don’t repay the capital (money borrowed) until the end of the loan’s term. You must make separate arrangements to repay the capital, known by lenders as a ‘repayment vehicles’. Interest-only mortgages are the most popular buy to let option for borrowers in the UK.
2. Repayment loans – these repay both capital and interest with each payment. They’re paid in regular installments over a fixed period.Then you need to consider which of the following options would suit you best:

1. Fixed-rate mortgage. The interest rate remains constant throughout a period of the loan. It’s unaffected by any changes to market interest rates, making it great for budgeting. Payments don’t go up when rates rise and don’t go down when rates drop.
2. Variable rate mortgage. The loan rate can go up and down, making them more unpredictable than fixed-rate loans.The three main types of variable rate loans are tracker, variable and discount.

1. Tracker rate loans. These ‘track’ another rate, most commonly the Bank of England’s base interest rate, so your loan’s interest rate will fluctuate to reflect if the rate changes. A tracker rate isn’t the same as the base rate, instead it’s set at a margin, or percentage, above it. These loan rates save you money when the base rate is low but can cost more if the base rate goes up.
2. Variable rate mortgages. The rate is managed by the lender, rising and falling when they decide. Also known as a managed rate or standard variable rate (SVR), this rate often follows the base rate, but at a higher margin or percentage than a tracker.
3. Discount rate mortgages. A discount is applied to the interest rate (usually the lender’s variable rate). The margin is fixed but the rate isn’t. These are usually offered for 3 to 24 months, with 24 months the most common. Note that although they’re known as discount rate mortgages, they’re not always the most competitive deal.When you contact Loan.co.uk will be happy to discuss your needs and circumstances, then advise you on the best options for you.

The rental yield from the property should more than cover the buy-to-let mortgage repayments. However, changes in buy-to-let tax legislation regarding rental properties should be kept in mind. As with most loans, the repayments to the lender will be collected by Direct Debit.

Buy-to-let mortgages are a type of mortgage, so long-term borrowing is the norm. At Loan.co.uk we offer terms of 3 to 40 years on our buy-to-let mortgages.

As with any loan or mortgage, you will risk having a negative impact on your credit rating and credit history, and ultimately, you risk losing your rental property.

There are lots of buy-to-let mortgage brokers throughout the UK, but our level of service and attention to detail sets us apart. You and your case will go straight through to one of our buy-to-let experts rather than just an administrator. But that’s not all:

1. We’ll show you the buy-to-let deals that suit your needs. So, for example, if you only want to see options that are self-financing from the income generated from the property, that’s what we will show you.
2. Gain advice that’s tailored to you and your needs. We search a large pool of lenders and products to find an exact fit for your funding requirements and your particular current circumstances.
3. Benefit from our specialist knowledge. You need more than just someone to find the most competitive rate. At Loan.co.uk we look at how stress tests will affect your borrowing, the impact of stamp duty rises and what tougher underwriting will mean for you. Then we deliver options that are both highly competitive and viable.
4. We consider a wide range of properties. From single residential units, multi-unit freehold, houses of multiple occupation (HMO) to flats above commercial properties.
5. We’ll help you when you want to expand your property portfolio. And help you to use the equity in your existing properties to re-invest.
6. Terms that will make the numbers work. Whether you need a buy-to-let mortgage that enables you to repay within as little as three years or need to spread your repayments over 40 years, we’ll get the deal that works for you and your circumstances.
7. No obligation or sales pressure. We’ll work out how we could make your plans happen, without putting under pressure to do anything further.