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Purchase/mortgaging

Getting a mortgage on a buy-to-let property

Thinking of investing in property? We’ve pulled together a guide to some of the basics of getting a mortgage on a buy-to-let property to help budding landlords get started.

Who can get a buy-to-let mortgage?

As with any mortgage, there are lots of factors a lender will consider when they’re deciding who they’re willing to lend to. For buy-to-let mortgages, most lenders want your loan to be repaid by the time you’re 70, so the term you can borrow over will be determined by this end date – if you’re 45 now, your maximum term would be 25 years. You’ll also need to have a good credit history and be able to comfortably afford your monthly repayments alongside all your other outgoings. Most lenders will require that your rental income is 25% more than your mortgage payments (up to 45% in some cases) so you’ll need to do your research to make sure you can comfortably recoup that figure from the property you’re looking to buy. Check out the local rental market and speak to friendly letting agents for their advice if you’re not sure.

How much could I borrow?

While you might be able to borrow up to 95% of the value of your own home, loan to value (LTV) rates on buy-to-let mortgages are much lower – between 65 and 75%. Lenders will look at the rental value of the property, plus your general financial situation, to determine whether what you want to borrow is affordable.

How are buy-to-let mortgages different to residential mortgages?

As well as the deposit you’ll need being higher for a buy-to-let property, there are a few other differences that will affect the overall cost. Fees tend to be higher and interest rates too, though most buy-to-let mortgages are interest only, which makes repayments lower than on a capital and interest mortgage for a property of the same price. Remember though, that does mean you’ll have to pay off the capital at the end of the loan term, so you’ll need to think about how you’ll cover that when the time comes.

If the property you’re buying qualifies for stamp duty (over £125,000) you’ll have to pay that plus an extra 3%, as the rate is set higher for buy-to-let properties.

What are the tax implications?

Any money you make after mortgage repayments and some expenses is classed as an income, so is liable to income tax. If your income from property is your only income, you can earn £11,850 before you have to pay tax, though you’ll still have to complete a tax return to declare that income to HMRC.

Do I have to pay when I don’t have tenants?

As with any loan, you’ll need to make regular payments, even if you have periods where you don’t have tenants. You’ll need to cover repayments from other sources, so try to set some money aside from rent payments when your property is occupied to give you a bit of a buffer if you find yourself with an empty house.

References

https://www.moneyadviceservice.org.uk/en/articles/buy-to-let-mortgages

https://www.gov.uk/income-tax-rates

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