If you are looking to purchase a property as an investment and rent it out, you may need a mortgage to help you do so. You won’t be able to use a standard residential mortgage for this and so you will need to look at buy to let mortgage products.
There are plenty of buy to let mortgages available depending on your circumstances and it is worthwhile to discuss your individual needs with a mortgage brokerage such as ourselves.
Can anyone get a Buy to Let Mortgage?
This depends on your circumstances as Buy to Let mortgages tend to be assessed differently to standard residential mortgages. I will go through a few brief criteria below:
Income and Affordability
The amount of a mortgage loan you may be able to obtain usually depends on the anticipated rental income you will receive. This is verified by the mortgage company’s surveyor. This is sometimes referred to as the Interest Cover Ratio within the mortgage industry.
With changes to the UK Tax system over recent years, the amount of any mortgage loan in comparison to the rental income may also depend on your own individual Tax status e.g. are you a basic or higher rate taxpayer.
Many buy to let mortgage companies, although not all, require a minimum income from the applicants and this is something that will need to be discussed on your mortgage appointment.
Interest Only Vs Capital Repayment
With Buy to Let mortgages there is also more scope to discuss having the mortgage on an interest only or capital repayment basis and you should always discuss this with your adviser.
What do we mean by Interest Only or Capital Repayment?
Interest only means you only pay the interest owed on the mortgage each month and so you owe the same debt at the end of the mortgage as you did at the start. This can mean that monthly mortgage payments are lower, but you will need a credible way of repaying the mortgage at the end of the term for it to be feasible.
Capital repayment is where each month your payment pays the interest – as well as some of the capital – off the mortgage. This means at the end of the mortgage term, of for example 25 years, provided you have made your payments in full and on time, you will have repaid the mortgage debt and be debt free.
Your Deposit
Buy to let mortgages typically require a larger deposit than a residential mortgage and therefore you should plan for this accordingly. You can get buy to let mortgages with deposits from 15% of the property’s value, although more common is to find products that require deposits from 20% to 25%.
The source of the deposit is also important as many buy to let mortgage companies have differing rules compared to residential mortgages. For example, in the residential mortgage market gifted deposits are relatively common. In the Buy to Let mortgage market, gifted mortgage deposits are less common and many companies will not accept them.
Are you a Homeowner?
A frequently asked question with buy to let mortgages is, can you get one as your first property? The simple answer to this is, yes but the situation will generally become more specialist. The reason behind this is many buy to let mortgage companies expect you will already own your own home to live in, prior to looking to purchase a property as an investment.
Are you a First Time Landlord?
Buy to let mortgages for First Time Landlords are very common but some lenders do add additional criteria to their requirements, for example they might ask for a higher minimum income from those applying. Please discuss your requirements in full with your mortgage advisor.
Are you a Portfolio Landlord?
If you already own multiple buy to let properties you might be classed as a Portfolio Landlord. This is very important as some lenders have restrictions around the number of buy to let properties you can own. You should discuss this with your mortgage advisor in depth.
HMOs (Houses in multiple occupation)
A house in multiple occupation is a property that is rented out to multiple individuals. This is important as many landlords now rent a property out by the room, as this can sometimes bring in greater rental returns.
A property is deemed as an HMO according to the Government website if the following apply:
The home has:
- At least 3 tenants living there, forming more than 1 household
- You share toilet, bathroom or kitchen facilities with other tenants
Your home is a large HMO if both of the following apply:
- At least 5 tenants live there, forming more than 1 household
- You share toilet, bathroom or kitchen facilities with other tenants
As a landlord if your property is a large HMO, it must get a licence from the local council.
In all circumstances when looking at HMO’s it is important to check your local authority rules in regard to House in Multiple Occupation.
What is meant by a household?
A household is either a single person or members of the same family who live together. A family includes people who are:
- Married or living together
- Relatives or half-relatives, for example grandparents, aunts, uncles, siblings
- Step-parents and step-children
The reason for discussing HMO’s here is that they will generally require a more specialist buy to let mortgage situation and it is very important that you discuss the rental arrangements of the property in full with your mortgage advisor.
In general HMO Mortgages can be more expensive in terms of interest rates available and fees compared to standard buy to let mortgage products.
Limited Company Buy to Let Mortgages
Sometimes when people are considering buying a property for investment purposes, they wish to do so within a limited company structure.
Whilst limited company mortgages are quite common, the amount of mortgage companies that offer them are generally fewer than for standard buy to let products and it is quite common for the mortgage company to impose some restrictions on the limited company and the directors. For example, they may ask for a personal guarantee from the directors towards the loan.
Some buy to let mortgage companies may also insist that the company is set up as a Special Purpose Vehicle limited company. This is simply a company which is set up just to hold property and do nothing else.
If you have a limited company that holds buy to let properties or you are thinking of starting your limited company buy to let journey, please get in touch to discuss your needs today.
Your Responsibilities & Planning
Regardless of your buy to let situation you will have certain responsibilities as a landlord and you should plan accordingly.
With buy to lets, it is your responsibility to make sure the property is adequately maintained and insured. For example, annual gas checks to name but one task.
You should always plan that the property is going to require both time and money whilst you have it. Therefore, some landlords use the help of a letting agent, to help them plan their legal and administrative responsibilities.
You should also plan for periods where the property may not be rented out, as regardless of rent being paid or not, any mortgage and insurances will need to be maintained.
With regards to landlord’s insurance…
This is home insurance that is designed for rental properties. This could be your buildings and contents insurance for example.
In addition, there are some landlord specific insurances:
- Rental protection insurance – This can cover for example if the property cannot be rent out due to damage occurring.
- Liability insurance – This can cover for example legal costs if you end up being taken to court.
- Unoccupied property cover – This can cover for example periods where the property is not being rented out.
Whatever your buy to let mortgage needs are, get in touch with us today to discuss.