Buy To Let Mortgages Explained.
What is a buy to let mortgage?
A buy to let mortgage is a mortgage on a residential property that you plan to rent out.
You can get a buy to let mortgage on a property you're buying, a property you already own and want to turn into a rental (like a property you've inherited), or on a property you want to rent out as a holiday let.
In most cases a buy to let mortgage is a commercial loan, as buy to let is classed as business income. You can find out more on the buy to let mortgages Together can offer on our buy to let mortgages page.
How do buy to let mortgages work?
A buy to let mortgage is very similar to a standard mortgage, in that you borrow against the value of the property, putting down a percentage of the price as a deposit and paying the rest back over an agreed period of time.
As with mortgages on a home you live in, you can choose between an interest only buy to let mortgage (in that you only pay back the interest, and pay back a lump sum at the end of the loan) and capital (where you pay back the interest and a chunk of the loan so you own the property outright at the end).
You can also choose a fixed rate buy to let mortgage (where the interest rate is set) or a variable rate (where the interest you pay varies) to suit your budget and financial goals.
Do you need a buy to let mortgage to rent?
Yes, because the terms of a residential and buy to let mortgage are different. If you need to rent out a house you’ve previously lived in, or know you’ll be renting it out as soon as you buy it, you’ll need a buy to let mortgage, otherwise you’ll be in breach of the terms of your residential mortgage.
The same is true if you’re renting out your property and want to move back into it yourself. You’ll need to tell your mortgage provider and switch back to a residential mortgage.
What are the requirements for a buy to let mortgage?
Different lenders will have different criteria, but at Together we don't have any minimum income requirements on buy to let mortgages. We assess affordability for buy-to-let mortgages by looking at the interest coverage ratio (ICR). This is the ratio of gross rental income to mortgage interest repayments.
If you haven’t bought the property yet, we can use an assessment of the potential rental income from an estate agent to make a decision.
If we do need to do an affordability assessment, we'll look at all of your income – including up to 90 per cent of projected rent, rent from other properties you own, pension income, and your salary.
How much deposit for a buy to let mortgage?
You’ll generally need a minimum 25% deposit for a buy to let mortgage, but the agreement you get will depend on the property and your circumstances. For example, if you have other rental properties with enough equity, we could lend you up to 100% of the purchase price, using your other properties as security.
How much can I borrow on a buy to let mortgage?
There are lots of factors that affect how much you can borrow on a buy to let mortgage, such as your income, credit status and outgoings, but we can lend for anything from £30,000 to £2.5m.
A specialist lender like Together will look at your full financial picture to help you define how much you could borrow, but we’ll generally lend you up to 75% of the purchase price or the value of the property. In some cases where you have other properties that can be used as security, up to 100%.
Types of buy to let mortgages
Just like residential mortgages, you have a few choices on the type of buy to let mortgage you go for. You can choose from interest-only or capital repayment, fixed rate and variable rate, or you could even go for a portfolio buy to let mortgage where you roll all your borrowing on multiple buy to let properties into one loan with one monthly repayment.
Can I get a mortgage on a holiday let? And how do holiday let mortgages work?
You can! You’ll need a buy to let mortgage on a holiday let as the rules are different to a residential mortgage, but how much you can borrow will be judged in just the same way.
Holiday lets enjoy different tax rules to private rentals, and in parts of the UK you may even find them more profitable than traditional rental properties, so it’s definitely worth considering getting a mortgage on a holiday let. With Together, you could get a holiday let mortgage on all kinds of properties, including thatched cottages and city centre flats.
For more information on holiday let mortgages and what Together can offer, go to our holiday let mortgages page.
What is a HMO mortgage?
A HMO mortgage is for multiple occupation properties, like student houses or properties where you want to rent out individual rooms to a number of tenants, like a house-share for young professionals. The Government classes HMOs as a house with three or more tenants who aren’t part of the same family, and who share facilities like a living space, kitchen or bathroom.
A HMO mortgage offers similar terms and benefits to a standard buy to let mortgage, and you can borrow on all kinds of properties up to a £2.5m value. For more information on HMO mortgages and what Together can offer, go to our HMO mortgages page.
How to finance a buy to let portfolio?
If you’ve already started on your buy to let journey, you might be thinking about how you expand your buy to let portfolio. You can use mortgages to finance a buy to let portfolio, and can even use the equity in existing buy to let properties to fund your next purchase.
Lenders like Together will look at the rental potential of your planned purchase and use that to calculate affordability. You can even look at getting a mortgage against your whole buy to let portfolio, where the loans on all of your properties are rolled into one and you make one big repayment each month rather than several smaller ones.
You can find out more about how you can finance a buy to let portfolio on our portfolio mortgages page.
Are buy to let mortgages regulated?
It depends on the buy to let mortgage you choose. Buy to let mortgages that are classed as personal finance are regulated by the Financial Conduct Authority (FCA) but commercial finance – which some buy to let mortgages fall under – are not regulated.
It’s important to speak to your lender about which buy to let mortgage deal is best for you, particularly if you’re an accidental landlord (for example, if you’ve inherited a property that you plan to rent out).
Take a look at our buy to let mortgages for accidental landlords if this applies to you.
Who can get a buy to let mortgage?
If you can afford to repay a buy to let mortgage we can probably lend to you, even if you’ve got a complex income or want to buy a non-standard property.
If you’re buying a new property, you’ll need at least a 25% deposit, and we’ll need to check your rental income is enough to cover your mortgage repayments. But we’ll look at the full picture of your financial situation to make a common sense lending decision.
Can a first time buyer rent out their property?
Yes, a first time buyer can rent out their property, as long as they have the right mortgage.
At Together, we’ll consider applications for buy to let mortgages from first-time buyers and treat them the same as anyone else. This includes first-time property investors and people who’ve never owned their own home.
Can you remortgage a buy to let?
Yes, you can remortgage a buy to let just like you can remortgage your own home. Whether your current deal is ending and you want to move lender, or want to tap into the equity on your rental property to make improvements, it’s possible to remortgage your buy to let property.
Can I change my mortgage to buy to let?
Yes, you can change your mortgage to a buy to let, and you may need to if you’re planning to rent out a home that currently has a residential mortgage so you’re not in breach of the terms of your loan.
However, depending on their terms, some lenders might not ask you to change your mortgage, so it’s worth asking the question before you move to a buy to let mortgage product.
How many buy to let mortgages can I have?
It depends on your lender, but at Together, there’s no limit on how many buy to let mortgages you can have.
Some investors who own lots of rental properties might decide to have one large mortgage that covers all of them, so they only have to make a one monthly payment. This is a portfolio buy-to-let mortgage and is secured against all of your properties at the same time, and is something we offer at Together.
Can I move into my buy to let property?
If you own a buy to let property and need to move into it, speak to your mortgage provider as you could be in breach of your mortgage contract if you don’t.
If they can’t accommodate the change in your current deal, you’ll need to shop around to find a provider that’s more flexible, or shift to a residential mortgage instead.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Together offer a range of regulated products and unregulated products. Together Personal Finance Limited are authorised and regulated by the Financial Conduct Authority (FCA) and offer products including (but not limited to) Personal mortgages, Secured loans, Consumer Buy to Let mortgages and regulated Bridging loans.
Our unregulated products are provided by Together Commercial Finance Limited and include (but are not limited) to unregulated Bridging loans, Buy to Let mortgages, Auction finance and Development finance.