Want to invest in property?
A buy-to-let (BTL) mortgage is designed for landlords who want to buy a property as an investment and rent it out to tenants. The rental income will cover the mortgage payment, and after paying any costs involved, the remaining income would be your profit.
BTL mortgages differ from residential mortgages in a few ways. As BTL mortgages are seen as an investment or a commercial transaction, they are non-regulated. This means you don’t have some of the consumer protections that you have under a residential mortgage.
For most buy to let’s you need a minimum of 25% of the property value as a deposit and should have a good credit score. Most lenders prefer potential landlords to have owned their own home (with a mortgage) to show your experience in paying a mortgage.
BTL mortgage interest rates tend to be higher than for residential mortgages, and they can include higher product fees too.
Many landlords choose an Interest Only mortgage for their rental properties. This keeps the monthly payment lower, which is a benefit for those times when you aren’t receiving any rental income. However, it does not reduce the mortgage capital, and at the end of the term you must have a separate plan in place to repay the capital.
There are many other things to consider when looking into buying a property as a buy-to-let investment.
Tax & Licences
Taxes
It is best to speak to an accountant regarding the tax implications of owning a buy-to-let property before you decide if it is right for you. You can either buy the property in your personal name or through a limited company. Both will have different tax implications and will be treated differently by mortgage lenders. The legal requirements will also differ, and you may need additional legal advice when purchasing through a limited company.
There will be income tax or corporation tax to pay on the rental income, stamp duty land tax to pay on any purchase, and there could be capital gains tax to pay when you sell the property.
Mortgage brokers are not qualified to give tax advice, so you must always speak to a qualified accountant to fully understand the financial implications of renting out a property.
Licences
There may be different types of licences required for certain properties, such as houses of multiple occupancy (HMO’s) and certain local areas. You should check with your local authority if any licences are required.
This service is offered by referral to a third-party
Rental Voids
You would also need to consider if you can afford to cover any rental void periods – would you still be able to cover the mortgage payments in the months that you do not have tenants in place, or if your tenants do not pay?
There are so many things to consider when deciding whether to become a landlord; the best piece of advice is to do your research thoroughly first. We are more than happy to discuss the ins and outs of different BTL options with you and can point you in the right direction for tax, legal and local authority advice too.
Property and Tenancy Maintenance
You will also need to consider how you would manage the property and the tenancy. There are legal obligations on landlords to repair and maintain the property to a good habitable standard. You must have a gas safety check done every year by a Gas Safe registered engineer. An EICR (electrical installation condition report) must be carried out at least every 5 years to ensure the electrics in the property are safe. You must provide an EPC (energy performance certificate) to the tenants and the mortgage lender.
There will also be repairs and maintenance to both the inside and outside of the property to ensure it is in a safe and appropriate condition for people to live in.
Some estate agencies offer different levels of property and tenancy management services. These can include marketing the property to let, finding and vetting your tenants, drawing up inventories and tenancy contracts, and even handling any maintenance issues. Some landlords choose to manage the property and tenancies themselves, and there are lots of landlord associations and advice on the government website that will help you understand your legal obligations as a landlord.
Frequently Asked Questions
What is a Let-to-Buy Mortgage?
A let-to-buy mortgage allows you to convert your current residential mortgage into a buy-to-let one so that you can move to a new residential property. Most lenders require you to leave 25% equity in your current property. The rental income from your tenants should cover the new buy-to-let mortgage.
Of course, this is all subject to affordability and lenders’ assessment, which we are very happy to discuss with you.
What is Consent to Let?
If you need to live elsewhere temporarily, then your lender might grant you what is called consent to let. In this case, your residential mortgage would remain, but you would have permission to rent out your home temporarily. This can be useful if you are required to work away for a period of time, or are needed to care for family members in their home, etc. Speak to your current lender to find out if this is possible.
What is a Portfolio Landlord?
The definition of a portfolio landlord differs from lender to lender, but generally, landlords who own 4 or more buy-to-let properties could be considered a portfolio landlord. Some lenders only consider properties that have a mortgage on them to be part of the portfolio.
If you are a portfolio landlord purchasing or remortgaging a BTL property, the lender may want to assess your entire portfolio to check that it is financially sustainable.
