If you’re thinking about buying a property to rent out, you’ll likely need a Buy To Let mortgage to help fund it. Buy To Let mortgages are loans that are specifically designed for people who wish to invest in rental property. You may be wondering what the difference is between a Buy To Let mortgage and a residential mortgage, and that’s what we’re going to answer in this guide. We’ll also explain how Buy To Let mortgages work, who can get one, and how much you can expect to borrow.
If you’re serious about becoming a landlord, you may also want to read our guide, ‘What to Look For When Buying a Buy To Let Property’.
Can I Get a Buy To Let Mortgage?
Much like residential mortgages, anyone can get a Buy To Let mortgage provided they pass the lender’s criteria. These criteria can be slightly more strict for Buy To Let mortgages, but you usually don’t need to have any prior experience renting out property.
Lenders will usually require you to have a minium income to qualify but they will mainly use a stress test to ensure you would be able to afford the mortgage repayments with the rental income you achieve from the property. This stress test will include cover for a period of void time (when you don’t have tenants) or potential interest rate hikes. Unlike residential mortgages, lenders will usually include your predicted rental income when calculating your affordability.
Lenders will also look at your credit history and may treat any blips on your record more seriously than with a residential mortgage. This is because lenders often see Buy To Let mortgages as higher risk. For this same reason, you’ll typically need a larger deposit than a residential mortgage, as we’ll discuss in the deposit section of this guide. Lenders will also likely sense check to ensure you have no intention of moving into the property in the future as this would breach the terms and conditions of a Buy To Let mortgage.
For most lenders, you’ll need to be a UK resident over the age of 18, and for some lenders, you’ll need to already have a primary home with a mortgage. However, there are some lenders in the UK that accept Buy To Let mortgage applications from First Time Buyers.
The exact criteria do vary from lender to lender, so make sure you speak to one of our friendly Buy To Let mortgage advisors to find out what deals you qualify for.
How Much Can I Borrow With a Buy To Let Mortgage?
Providing you pass the lender’s criteria described in the previous section, you can typically borrow up to around 75% of an average Buy To Let property’s value and in some cases 80%. However, exactly how much you’ll be able to borrow will mostly depend on how much rental income you’re likely to generate from your Buy To Let property. Most lenders will require the rental income to be around 25% higher than the mortgage repayments (when stress tested at a higher interest rate than the one you secure), to allow room for other expenses and changes in circumstances. Lenders can take into account your disposable personal income, expenses, debts and credit history as mentioned earlier and this is known as top slicing. This is where disposable income can be used to ‘top up’ any shortfalls in rental calcuations and enable you to borrow more.
How much you’ll be able to borrow will vary from lender to lender, so please speak to one of our friendly Buy To Let mortgage advisors to get a more accurate figure and perhaps a mortgage in principle.
Buy To Let Mortgage Rates in the UK
Buy To Let mortgages tend to come with higher interest rates than residential mortgages – typically around half a percentage point higher*. This is because lenders see these as riskier products. However, the exact rates can vary widely depending on the lender, product and the base rate or cost of borrowing at the time. To put yourself in a better position in terms of lender and product, we recommend speaking to a Buy To Let mortgage broker who has access to a comprehensive selection of deals from across the market. Having good credit and a large deposit can also help.
However, the base rate and cost of borrowing may be the most influential factors when it comes to Buy To Let mortgage rates. For example, the average 5-year fixed Buy To Let mortgage rate in October 2018 was just 3.40%, whereas in October 2023, this stands at 6.32%**.
Are Buy To Let Mortgages Interest Only or Repayment?
Buy To Let mortgages can be either interest only or repayment, and which you should choose depends on your situation. That being said, it’s more common in the UK for landlords to opt for interest-only Buy To Let mortgages. The benefits of interest-only mortgages for landlords are that monthly payments are lower, which can decrease the risk and may free up more money to invest in other rental properties.
Can Buy To Let Mortgages Be Offset Against Tax in the UK?
As of April 2020, UK landlords can not directly offset any of their Buy To Let mortgage repayments against income tax. In other words, whatever income tax band you’re in will apply to the full amount of rental income you receive from any Buy To Let properties you own. However, that isn’t the end of the story. At the time of writing (October 2023), UK landlords do receive a tax credit worth 20% of their mortgage interest payments. For example, if your annual mortgage interest payments come to £10k, you’ll currently be able to claim a tax credit of £2k. So in essence, for basic rate taxpayers, the outcome has remained the same (an effective 20% tax relief), but for higher and additional rate taxpayers, the new system is not as generous.
Can I Use Online Buy To Let Mortgage Comparison Websites?
Although you may be able to get a feel for the current Buy To Let mortgage rates online by using comparison websites, we strongly recommend speaking with a specialist mortgage broker. A good Buy To Let mortgage broker will generally have access to a wider range of deals than those displayed on comparison websites. He or she will be able to look at your circumstances and find out what rates are available to you from across the market. Your broker should also be able to offer advice on the next steps and arrange a mortgage in principle so you can start making offers.
How to Find a Good Buy To Let Mortgage Broker
Not all mortgage brokers are experienced with Buy To Let applications, and some only have access to a small range of products. Here’s a checklist to ensure you find a good mortgage broker who can secure you the right deal. Your Buy To Let mortgage advisor should:
- Have many years of experience dealing with Buy To Let mortgage applications
- Have access to a range of Buy To Let mortgage deals from across the market
- Be able to speak to you in person as well as on the phone or via video call
- Have a paraplanner to help your application go smoothly
- Be CeMAP qualified
- Have an insurance team to help you protect yourself and your property
At Michael Usher Mortgage Services, our Buy To Let mortgage brokers tick all of these boxes. We also have a lettings team at Michael Usher Sales & Lettings ready to help you find the right tenants, arrange check-in and check-out, collect rent, handle maintenance, and fully manage your property.
The Bottom Line
Finding out how much you can borrow with a Buy To Let mortgage should be one of the first things you do when considering a rental property investment. Buy To Let mortgages are slightly different to residential mortgages, and we’ve explained how they work in this guide. Being prepared is a hallmark of successful landlords, so be sure to read through the information above and contact us to see what Buy To Let mortgage deals are available to you. To be even better prepared to purchase your first rental property, be sure to also read our guide, ‘What to Look For When Buying a Buy To Let Property’.
If you want to see how much you could borrow with a Buy To Let mortgage, we can help you. At Michael Usher Mortgage Services, we’ve been helping landlords throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of Buy To Let mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will
depend on your circumstances but will be agreed with you before
proceeding.
* Source: https://www.totallymoney.com/mortgages/buy-to-let-mortgages/
**Source: https://www.mortgagestrategy.co.uk/news/btl-fixed-rates-drop-and-product-choice-rises/
