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?
Your 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.
Being a landlord is tough, busy and time consuming work. Thankfully though, there’s plenty of new technology out there that can make life easier for the average UK landlord. It can be difficult to know where to start when it comes to choosing the best mobile apps. And how can you be sure these apps will make your profession any easier? What are the best apps for landlords?
From local landlord inventory services to helpful communication software (and everything in between) the market is huge. So here’s our pick of the best apps worth trying. Think we’ve missed something off the list? Get in touch on Twitter and tell us your thoughts.
The Landlord App
The name really says it all. The Landlord App basically offers a comprehensive selection of features to help landlords operate and manage their businesses more effectively. From finding new tenants to scheduling utility bill payments, it can even help with chasing payments owed as well as much more. Coming highly recommended by the vast majority of landlord inventory services in the UK, this is app is worth a try.
By landlords, for landlords. DIY Landlord allows the user to keep track of all their current rented properties. Offering key financial information like cash flow and rental payments, the app’s main dashboard will become a sight for sore eyes. If you’ve got a large property portfolio, this app will save you significant time, stress and worry.
Ideal for keeping track of your most important documents, Scanbot allows the user to create high quality JPEG or PDF copies of documents in a matter of seconds. From contracts to receipts to invoices and so on. Simply use your smartphone’s camera to instantly scan and record your documents. Copies are saved in excess of 200dpi for outstanding quality and the app does a great job of reducing motion blur.
Forget the filing cabinet of paperwork, the Mobile Landlord app covers everything. Create a profile for up to five properties and keep all relevant information in one place. From tenancy details and expenditure to key trade contacts, this app covers it all. You can even set key reminders like updating the Gas Safety Certificate.
The Rightmove app takes everything the market-leading online estate agency offers and slips it into your pocket. It’s one of the best and most important apps you’ll find for keeping an eye on local markets and assessing property values/rent averages. Advice on property research and staying on the pulse of the property market could even help you negotiate a house price. It can also be a fantastic app to use if you plan on using Rightmove to advertise your property.
Let’s face it, tenancy agreements are some of the more tedious parts of the job. With the Tenancy Agreement app, you can create a professional tenancy agreement on your smartphone in a timely and hassle free manner.
Home Decorating Ideas
Interior design can be a confusing world! Especially for the uninitiated. If you’re a landlord crying out for inspiration, the Home Decorating Ideas app is on hand to help. Get free tips on interior design and save any snaps that take your fancy.
RenTracker Property Management
When you’re a landlord letting to various tenants, it can be difficult to keep track of all rent due dates and financial deadlines. RenTracker Property Management is here to help. This app tracks your finances including rent payments, expenses and taxes. It also gives you the opportunity to export your financial reports.
Ask A Lawyer
Got an important legal question to ask but don’t have the money or means to arrange a consultation. Ask a Lawyer is the answer. The app allows landlords to ask those burning questions about their business and receive expert answers and advice from qualified, experienced legal professionals. Best of all, it’s completely free!
Landlordy markets itself as the ultimate mobile companion for the DIY landlord, and it’s not hard to see why. With the ability to help you track rent payments, manage expenses and even prepare rent invoices you really should downloaded and use this app. It even gives you the option of exporting and sharing the data with your accountant, so that your finances are always up to date.
It sounds so simple but it’s often overlooked. Keep up-to-date with tenants with WhatsApp. If your property is a HMO, create a house group chat including all tenants. This will help resolve any internal issues and can even boost tenant moral (happy tenants are likely to stay in your property longer).
Advertise your rental property to UK tenants for free on the LetsHelpYou app. With a smooth UX, this app allows you to upload images and key details of your property at speed.
Landlord Property Buddy
Ditch the complicated excel spreadsheets, Landlord Property Buddy has got your back. This app offers a full range of property management services and comes highly recommended. Offering assistance with income/expenditure, transaction reporting, reminders, document safekeeping as well as invoices and tenant details. This app helps manage the full landlord experience to make your life a little easier.
Fixflo is one of the best apps of its kind. It serves as a convenient and reliable method for reporting and recording minor to moderate maintenance issues. The tenant is able to describe the problem, take a picture of it with their device and send it straight to the landlord’s device. It can also be used to report things like graffiti and vandalism, dumped rubbish, abandoned vehicles and more.
Kaptur Inventory Pro
Designed by property inventory experts for busy professionals in the property sector, Kaptur is the very latest property information collecting tablet technology. This offers the most efficient way to collect, prepare, report and manage information. Find out more about how Kaptur Inventory Pro can help you here.
If you’re a landlord suffering with the headache of rental inventories, find out how No Letting Go can help.
We’re working hard keep up with the demand for our services – says CEO Nick Lyons. With new franchisees in Bath, West London, Stockport, Manchester and Gloucestershire bringing the number to 43 offices, Nick says there has never been a better time to get into property services through a successful franchise network.
“Perhaps the saying ‘ an Englishman’s home is his castle’ no longer applies,” says Lyons. “The UK is fast becoming a nation of renters; research indicates that by 2021 renters will outnumber homeowners across the capital and this trend extends countrywide with projections that 39% of the UK’s population will be renting by then.”
The market is being further supported by an increase in applications for buy-to-let mortgages, rising a fifth since last year and 3% since June.
This continued growth has meant No Letting Go’s services are in great demand, which means potential franchisees have an opportunity to become part of this fast growing sector and capitalise on this trend with the market’s leading brand.
“Our tablet based reporting and online inventory management system allows already busy lettings agents and property managers to order and manage property reports online field in real-time whilst maximising profits for the franchisee. It’s become more important than ever to be able to deliver an efficient, reliable service combined with detailed and accurate reports. We believe that we are unrivalled in delivering this.” added Nick “For those who are keen to grow a successful business in the property sector the time has never been better to join the No Letting Go network. Exciting times are ahead.”
For more information on No Letting Go please contact Gary Claven on 07475 526111 or visit www.nolettinggo.co.uk