April 18th, 2014. Ben Lloyd
The Complete Guide to Buy-to-let Mortgages
What is a buy-to-let mortgage? Who is it for? How exactly does it work? How much can you borrow with one? Where do you go to get the best deals? Let’s take a look at all things buy-to-let:
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage for a property that you intent to rent out. Finding and securing a buy-to-let mortgage is slightly different to getting a residential mortgage, but the concept is still the same. Both residential and buy-to-let mortgages are essentially loans secured against the value of a property.
Usually, buy-to-let mortgages are interest only, which means that you won’t have to repay the lump sum on a monthly basis, but will have to repay in full after the mortgage term is over.
In effect, a buy-to-let mortgage is a type of business loan rather than a form of personal lending because it relies on you making money from the property.
Who needs a buy-to-let mortgage?
Anyone who is looking to buy a property to rent out and can’t buy it outright will have to get a buy-to-let mortgage. It’s considered a form of fraud to rent out a house that’s been bought using a standard residential mortgage.
How much do buy-to-let mortgages cost?
Buy-to-let mortgages are typically more expensive than regular mortgages by around 1% or 1.5%. This is because landlords are reliant on tenants for their income, and as such they represent a more significant risk to the lender.
What’s more, because of this extra uncertainty, you’ll also need to pay more significant arrangement fees arrange a heftier deposit to secure a buy-to-let mortgage. The minimum deposit you’ll be able to put down will be around 25% – while you’ll have to put down at least half of the property’s value in order to access some of the most attractive rates.
Who can get buy-to-let mortgages?
Renting out property can be very lucrative, but it’s not possible for many people. On top of the hefty deposit you’ll need, you’ll probably have to pass other criteria to get a buy-to-let mortgage. You’ll have to be:
• A homeowner, whether outright or with a current mortgage
• Earning more than £25,000 p/a
• In possession of a good credit record, with low levels of personal debt
• Between 21 and 70 when the mortgage term ends
How much can you borrow through a buy-to-let mortgage?
As with residential mortgages, the amount that you can borrow depends on your personal circumstances. However, a lender will also take in to account the amount of rent that you expect to generate through the property.
Usually, lenders will look for rental income to be around 30% higher than the monthly interest costs of the mortgage.
To check how much rent you can expect to charge every month, take a look at other rental prices in your chosen location or ask lettings agents and commercial finance specialists.
Are there any taxes involved in getting a buy-to-let mortgage?
There aren’t any that are specific to buy-to-let. However, there are some taxes that you’ll need to account for when buying or selling a property:
• Stamp duty – on all property purchases above £125,000.
• Income tax – on any profit that you make from renting your property
• Capital gains tax – on any profit you make after selling the property
Where do you go to get the best buy-to-let mortgages?
As with regular mortgages, there are a wide variety of banks and lenders offering buy-to-let schemes, as well as comparison sites to take a look at what’s being offered. The Money Advice Service’s Mortgage Comparison Table is a great way to get an idea of how much finance you could access.
However, while these tools are invaluable in keeping costs down, it’s best to speak to an experienced commercial finance expert. They’ll be able to talk you through your investment, the options available to you and the way that you’ll be able to keep costs to a minimum.
Why choose Pure Commercial Finance for your buy-to-let mortgage?
At Pure Commercial Finance, we specialise in providing insight and expertise to property investors. With years of industry experience and access to exclusive financial contacts, we can help you find finance that suits you, maximise your investments – and take the hassle out of the process.
Whether you’re looking for competitive rates for a number of rental properties,want to secure a HMO buy-to-let mortgage, or are simply looking for ways to drive costs down on one investment opportunity, we can help. Talk to our expert team today.
Article By Ben Lloyd
April 18th, 2014
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben