High tenant demand means buy to lets can offer a lucrative investment for prospective and professional landlords. However, changing terms to tax relief on buy to let mortgages and rising interest rates require landlords to think carefully about the risks and rewards of entering into one.

If you’re considering a buy to let (BTL) mortgage, it’s important you understand the differences between a BTL mortgage and a residential mortgage and the different types available to you.

Having all the information available is one way to make a secure decision. That’s why we’ve created this guide on buy to let mortgages so you can make the right choice for you.

What is a Buy to Let Mortgage?

Put simply, a buy to let mortgage is a loan specifically designed for landlords looking to buy property to rent.

Buy to let mortgages are viewed as higher risk by lenders, meaning there can be higher fees, deposits and interest rates than residential mortgages.

But don’t let that put you off completely!

Can Anyone Get a Buy to Let Mortgage?

If you’re looking to buy property in order to rent it to other parties, it’s likely you’ll need to make a BTL mortgage application.

There are certain criteria you need to meet in order to be considered.

You are eligible for a BTL mortgage if:

  • You are looking to invest in residential property (this includes houses and flats)
  • You have the financial stability to repay the mortgage
  • You own your own home (either with a previous mortgage or outright)
  • You have a good credit rating
  • You earn over £25,000 per annum
  • You are below a certain age. (Most lenders have stipulations regarding the age you are when your mortgage ends which is usually between 70-75 maximum)

How do Buy to Let Mortgages Work?

BTL mortgages aren’t too different from regular mortgages, which, as a homeowner, you’ll be very familiar with.

There are, however, some variations it’s important to be aware of:

  • Fees and interest rates are a lot higher than residential mortgages
  • The deposit is around 25% of the property’s value as a minimum
  • BTL mortgages tend to be interest only, rather than requiring monthly repayments. This means that the loan is to be paid in full at the end of the mortgage term.
  • Most buy to let mortgages are not regulated by the Financial Conduct Authority (FCA). However, if you are letting the property to a family member, this will be considered as a consumer buy to let mortgage and will be subject to the same regulations as a regular residential mortgage.

Types of Buy to Let Mortgages

Buy to let mortgage deals can differ depending on which lender you go with.

Interest rates will all depend on the amount of money you borrow and how much rental income you receive.

It will also be affected by the type of buy to let mortgage you choose:

Tracker BTL Mortgage

If you opt for a tracker mortgage, your monthly repayments are subject to change each month depending on interest rates. This is great news if rates decrease, but not so good if they increase dramatically.

Discounted Variable Mortgage

A discounted variable mortgage is a mortgage deal with an interest rate set around 2% below the SVR (standard variable rate). These deals usually last around two years. The rate is still subject to change dependant on the SVR, but the discount will stay in place for the agreed time.

Multiple Year Fixed Rate Mortgage

A fixed-rate mortgage will keep your repayments low and stable for two to five years. Different mortgage providers offer different deals, so it’s worth shopping around. Just make sure to check what the rate will increase to at the end of the fixed period.

How to Get a Buy to Let Mortgage

Now you know the basics, it’s time to find out how to apply for a BTL mortgage and where to look.

Most large banks loan BTL mortgages, and a mortgage broker can help you decide which mortgage deal makes the most sense for your needs and purposes.

Another place to look when searching for the best mortgage rates is a reputable price comparison website.

Here are some reliable sites to use:

It’s worth checking a few comparison sites to get the bigger picture before making a decision. And don’t forget to read the small print for hidden fees and extra charges!

How Much Can I Borrow?

A couple counting penniesYour borrowing limit is connected to your rental income. This is called a loan-to-value, or LTV amount, which is worked out as a percentage of the property value. An LTV for BTL mortgages is usually around 90%- 95% rather than 100% for residential mortgages.

This means that your loan is likely to be lower, due to the perceived high risk factor.

Because of this, it’s recommended that you charge around 25%- 30% more for rent than your mortgage payment.

Local property agents or websites can help you get an idea of the amount of rent you can charge in your desired area.

Despite lower borrowing amounts and a larger deposit, the average buy to let purchase price is actually lower than for a residential property.

Tax on Buy to Let Mortgages

Keep in mind that there will be other outgoings to consider when deciding if you can afford a BTL mortgage.

Income tax, capital gains tax, landlord fees, landlord insurance, and letting agent fees all need to be considered.

With changing terms to tax relief on buy to let mortgages it’s important to keep track.

The new regulations mean that landlords can no longer claim all their mortgage interest against income tax on rent. The amount of interest deductible is being reduced by 25% a year until 2020, when it will become a 20% tax credit on the mortgage interest paid.

This change has the potential to raise some landlords up a tax bracket.

Plan for all Circumstances

As you know, applying for a mortgage is a not a decision to be taken lightly as the responsibilities are a long-term commitment.

To protect your financial security, it’s a good idea to have a plan in place for different eventualities.

For example, it’s not uncommon for a rental property to experience void periods in which no rent is coming in. Or, at some point or another, a pipe might burst, or a roof might need urgent repair. As a responsible landlord, you need to be able to provide effective and timely repairs.

To protect yourself from this burden, making a savings plan is vital. Ensure you are saving as much as possible when you have full paying tenants to avoid any stressful situations in the future. This should happen before making an offer on a house.

Tip: Don’t rely on selling the property to pay the mortgage off! If house prices fall, and you don’t have a backup plan, you’re in serious trouble.

Protect Your Buy to Let Investment

While applying for a mortgage is always a risk, once you have all the information at your fingertips, you can make a better informed decision.

One way to help guarantee the safety of your property investment is to ensure you are fulfilling all your duties and requirements as a landlord.

No Letting Go offer a wide range of property management services including professional unbiased inventories, safety assessments and maintenance reports to help you protect your investment.

Browse our full list of services to find out how we can help.

From all the media stories, no-one is quite sure whether the property market is booming or not!

The simple answer is that the buy-to-let sector is doing very well but it would be doing even better if there were more new properties to buy. There’s an increasing market in the number of people looking to rent which means that demand is pushing up rents.

Indeed, the Council of Mortgage Lenders recently said that investing in houses and flats to rent is growing in popularity once more.

They say that the number of buy-to-let properties soared by 84,000 last year – with buy-to-let mortgages now accounting for nearly 13 per cent of the total outstanding value of home loans in the UK.

That means that investing in property to rent is a worthwhile proposition once again.

But let’s not kid ourselves about the current situation for prospective investors. While the buy-to-let market is picking up, it’s nowhere near the heady heights of the 2007 property boom. And most of the investors picking up properties for their letting portfolios are cash-rich investors.

It makes sense really: property prices are relatively low and rent prices are still fairly high which means that there’s a good return on your investment.

And the market for renting a home in the UK is continuing to grow.

Estate agents Countrywide say that last year, more than 275,000 new tenants registered for private rental accommodation – a 24 per cent increase on the previous year.

Across most of the UK there is a shortage of property to rent which means rental prices are remaining high and increasing in some areas.

Potential landlords can still buy property to enjoy the rental market using buy-to-let mortgages from many lenders. In fact, there’s so much competition for a potential landlord’s business that the average borrowing rate on a buy-to-let mortgage has fallen in recent months.

The headline of this article is: How is the shortage of new properties affecting the buy to let market? However, it would be wiser to read this as: How is the shortage of new good quality properties affecting the buy to let market?

That’s because the population of the UK is growing and it’s a relatively transient one – people are moving to where the work is and they are willing to pay for a good quality home.

Though there is no doubt that underpinning the buy-to-let market is the fact that not enough new homes are being built and people are living longer as well as the fact that there are more single person occupied homes.

For more information and advice on the current state of the buy-to-let market, contact the UK’s premium provider of landlord services NoLettingGo.co.uk or call 0800 8815 366.

No Letting Go are the UK’s leading provider of inventory management services, providing check in and check out services, property inventory and condition reports and specialist on site services to landlords, lettings agents and property professionals.