Buy To Let Mortgage

Home – Buy to let mortgage

Looking to complete your first BUY-TO-LET Purchase,
 or already maintain a sizeable portfolio properties?

A buy-to-let mortgage is a type of loan designed for purchasing a residential property with the intention of renting it out for profit, mainly targeting landlords. Similar to a standard mortgage, you make a deposit and borrow the remaining amount from a lender, which you then repay over a fixed period. However, specific criteria must be met, and a larger deposit is typically required compared to a standard residential purchase.
When purchasing investment property with a mortgage, the lender primarily considers the potential return on investment. Typically, they determine the loan amount based on the property’s potential rental income, also known as the yield. In some cases, lenders may assess your personal finances or those of your business if you are purchasing as a limited company. Most lenders require the rental income to not only cover mortgage repayments but also provide an additional 25 to 45% to account for taxes, maintenance, insurance, and other expenses.

Differences Between

Buy-to-Let and Residential Mortgages

When comparing buy-to-let and residential mortgages, several key variances exist, which include:
  • Interest Rates:  Buy-to-let mortgages typically carry slightly higher rates due to the commercial and elevated risk associated with this type of investment.
  • Repayment Type:  Buy-to-let mortgages often utilize interest-only repayments, while residential mortgages are commonly based on capital repayment
  • Fees:  Buy-to-let mortgage fees are typically higher and calculated as a percentage of the property value, although feefree options are available.
  • Deposit Requirement:  Generally, a minimum of 25% of the property value is necessary for buy-to-let mortgages, unlike residential mortgages, where 5% may suffice at times.
  • Criteria:  The criteria for buy-to-let mortgages are usually more stringent and comprehensive than those for personal homes.
  • Loan Calculation:  Buy-to-let mortgage approval is primarily determined by rental yield rather than personal financial capability and credit rating, although these factors are also taken into account
  • Regulation:  While most buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA), exceptions exist, such as consumer buy-to-let and regulated (or family) buy-to-let mortgages.

How to get the best
 buy-to-let mortgage rates

Similar to other mortgage categories, a substantial deposit plays a crucial role in obtaining favorable rates by reducing the loanto-value (LTV) ratio.

For buy-to-let mortgages, which typically start at a 25% deposit, aiming for around 40% can secure the best rates by bringing
down the LTV to 60%.

A larger deposit decreases the lender’s risk, potentially leading to more competitive rates for you.

What are the different types of
 buy-to-let mortgages?

When it comes to rate types, buy-to-let mortgages resemble standard residential mortgages as they offer fixed-rate and variablerate options.

However, there are some unique types of buy-to-let mortgages to choose from, as outlined below:

Buy-to-lets that are regulated
by the FCA

In certain rare situations, it is feasible to obtain a buy-to-let mortgage with FCA protection, resembling a standard residential mortgage. This applies to:
  • A regulated buy-to-let - also referred to as a family buy-to-let, which permits the purchase of a property solely for renting to close relatives.
  • A consumer buy-to-let  - is designed for 'accidental landlords' who inherit a property they do not wish to reside in but still have a mortgage obligation to fulfill.

Limited company buy-to-let mortgages

In recent years, there has been a surge in purchasing properties through limited companies rather than as individual landlords. This shift is primarily attributed to the elimination of tax relief on mortgage interest and the inability to utilize rental expenses to lower tax obligations, impacting profit margins for many independent landlords.

A limited company buy-to-let mortgage typically involves a special purpose vehicle (SPV), a company established specifically for handling the acquisition, sale, and administration of residential properties. Due to varying tax regulations for businesses compared to individuals, this method can offer a more profitable approach to property investment management.

Let to buy mortgage

“Let to buy” is not a really mortgage type; instead, it refers to a situation where you hold two mortgages simultaneously. Typically, this involves refinancing your current residential property as a buy-to-let, while also securing a new mortgage to purchase a different home.

This arrangement can assist in covering your current mortgage if you are unable or unwilling to sell your property but need to
move home.

Limited company
 buy-to-let mortgages

In recent years, purchasing property through a limited company, rather than as an individual landlord, has gained significant popularity. This shift is primarily attributed to the elimination of tax relief on mortgage interest and the inability to utilize rental expenses for tax reduction, impacting property profits for many independent landlords.

A buy-to-let mortgage through a limited company is typically conducted via a special purpose vehicle (SPV), a company established specifically for handling the acquisition, sale, and administration of residential properties. Since businesses are subject to different tax regulations than individuals, this approach can offer a more lucrative method for managing investment properties.

HMO
buy-to-let mortgage

If you are considering purchasing an HMO (House of Multiple Occupancy) property, like a student house, it is crucial to find a suitable lender. Not all lenders provide buy-to-let mortgages for this property type, and the requirements may vary.

Despite this, HMO properties can yield higher returns compared to single-family homes. Feel free to contact us for assistance in obtaining this loan.

Can I get a buy-to-let mortgage?

Buy-to-let mortgage criteria vary from one lender to another. But some standard criteria you’re likely to need to meet are:
  • Age requirements - Need to be a little older for this type of mortgage, with most lenders' minimum threshold being 18-25 years old. The upper age limits tend to be a bit more flexible than on residential properties but do vary, so it’s worth asking our advice if you’re near retirement age
  • Home-ownership - Some lenders prefer landlords to own a residential property first, but this is not always the case.
  • Income - Most lenders assess your personal or business income. Some may even have a minimum income requirement, but this is not standard.
  • Income potential - The primary focus for the lender will be the rental income of the property you intend to purchase. To ensure a clear assessment, it's advisable to engage an ALRA registered letting agent to evaluate the rental potential beforehand, as most lenders require this level of assurance. When seeking a specific type of buy-to-let mortgage, additional criteria are anticipated. For instance, lenders who consider HMO properties typically impose restrictions on the total number of bedrooms allowed.
  • Credit history - You personal or company credit history will play a role in the lender decision when you apply for a buy-to-let mortgage. You may find a bit more flexibility if your property has a particularly high rental yield, or if you already have a successful portfolio of investment properties, however.

  • There are also bad credit (or subprime) lenders specifically for applicants with a riskier credit score. But you’ll likely pay higher rates for this privilege

Buy-to-let mortgage tax liabilities

Buy-to-let investment comes with a range of taxes to consider, so it’s important that you consider these in your profit planning exercises.

If you already own another property – including your own home and other rental properties you’ll need to pay a second home surcharge on any additional property. In England and Northern Ireland, this is 3% on top of standard stamp duty.

If you purchase a buy-to-let property as a first-time buyer, you won’t be eligible for the stamp duty relief that you’d expect when buying a residential property in England or Northern Ireland.

As a landlord you may be liable for other kinds of taxes too, such as income tax and Capital Gains Tax. It’s a good idea to get tax advice before taking out a buy-to-let mortgage, it may give you a clearer idea of where you want to run your portfolio as a landlord or limited company.

Can I remortgage a buy-to-let property?

Yes, of course. In fact, if you’ve come to the end of your initial term, your lender will switch you to their standard variable rate (SVR), which is usually much higher.

Remortgaging with the same lender is known as a product transfer (PT). At Ark, we can help you compare your PT offers with the best you can get from other lenders in the buy-to-let market.

It’s always worth letting us check all remortgage options for you, as you might be able to save some cash by remortgage to
another lender or capital raise to buy another property.

If you're still trying to grasp the process,
this is the journey we will embark on together.

Do your Research

how much are local rents? is the property in a good location (close to the station, shop school etc)? how much will it cost to maintain?

Know your repayment plan.?

if you are looking to go with interest only mortgage, which most landlords do, you will need to know how you will repay the loan at the end of the mortgage terms, 25, 30 or 35 years terms. The bank/lender will want to know this, it could be by sale of the property, investment income, pension or other means.

Book a personal consultation

We take our time to get to know you and your plan, we will guide you about the rates what will be your monthly mortgage payment, and how much monthly cashflow you can achieve on this property.

Prepare your Documents.

We will need to see proof of deposit, Income records, bank details, and personal ID documents like proof of address & passport. if you are buying under a Limited company need the company registered as SPV (special Purpose Vehicle), company bank account details.

Contact Us

Contact US