Buy to Let Mortgages

What is a buy to let mortgage?

A buy to let mortgage is assessed differently to a residential mortgage as the lender is mainly concerned about how much income your property will generate rather than your own income and expenditure, but lenders normally require you to be earning an income. Lenders generally need the rental income to be between 125% and 145% of the their stress rate.

Why would you need to have a buy to let mortgage?

Due to how the mortgage is going to be paid; through tenants paying rent; you need to have the correct financing in place. If you were to start renting out a property on a none buy to let mortgage and the lender becomes aware, you may be subject to penalty payments or required to pay the outstanding loan in full.

Interest only mortgages

Unlike most residential mortgages, a buy to let property is usually financed on an interest only mortgage. When you pay your buy to let mortgage each month you will only be paying the interest on the property. At the end of the agreement, you will be required to pay the debt left on the property. mo

Buy to let mortgages

The types of mortgages you can be offered is determined by criteria such as the deposit amount you have; the amount you are looking to borrow; your credit history. These are all worked out and the resulting calculation is what the mortgage provider is willing to lend you. They will work this out from your household income and your outgoing commitments. Having large loan and credit card debt will decrease the likelihood of being approved.

Landlords

If you want to start renting out a property, you will need to have a buy to let mortgage. Landlords need to let their buy to let mortgage advisors know what they’re intending to do. Mortgage lenders see renters as higher risk than homeowners and this can affect buy to let mortgage rates. When you apply for landlord insurance; if the mortgage is not buy to let then the insurance could be invalidated.

Limited companies

Due to tax obligations; it can be more cost effective to set up as a limited company. This is where we recommend you seek buy to let mortgage advice as it is different for each person’s circumstances. All costs can be deducted as a business expense and it allows you to draw income as a dividend to save money. Make sure you check all this with your buy to let mortgage advisor.

Holiday lets

A holiday let mortgage is a loan specifically designed for properties let out as holiday accommodation. As holiday homes are let on a short-term basis, you can’t buy a holiday home using a Buy to Let mortgage as these assume that the property is let using an assured shorthold tenancy of at least six months to a year. Although you may be able to make more money overall with a holiday home, the income fluctuates. This means the rental income you’ll get, which is needed to work out how much you can borrow, is worked out differently.

Portfolio Buy to Let

A portfolio landlord is typically defined as any landlord with four or more mortgaged buy-to-let properties. If you are buying your fourth property and seeking a buy-to-let mortgage, you will be classed as a portfolio landlord.

Since the new Prudential Regulation Authority (PRA) guidelines for portfolio landlords came to play, these landlords now face stricter affordability tests and additional checks including Interest Cover Ratio, tax changes and stress tests on interest rates rises.

House in multiple occupation

An HMO is where you rent out a multi bedroom home to unrelated individuals who have their own bedrooms but share communal areas, such as bathrooms and living spaces. Sometimes a buy to let property will require planning permission depending on the number of unrelated tenants.

Multi-Unit Block (MUB) Mortgages

A multi-unit freehold blocks (MUFB) is a single freehold property which has been split up into multiple self-contained units. Each unit will have separate entrances, kitchen and bathroom areas, and they can have shared areas such as hallways and outdoor spaces.

Disclaimer:
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayment on your mortgage.