Buy to Let Mortgages

This time on the mortgage and protection podcast, Paul Crisp from Fiducia Mortgage Solutions answers your questions on Buy to Let Mortgages.

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What is a Buy to Let mortgage?

A Buy to Let mortgage is there to support the purchase of a property that you intend to let out for commercial reasons. It’s not to buy a property for you to live in.

What is the difference between a Buy to Let mortgage and a Residential Mortgage?

A residential mortgage is for use on property that you’re going to live in. A Buy to Let is for an investment, that’s the key difference.

How is an individual Buy to Let different from a Limited Company Buy to Let?

A personal or individual mortgage is in your own name whereas with a Limited Company, it’s in a company name. There are tax advantages and disadvantages to both of them, but we always recommend getting some independent tax advice before making the decision on which way to buy.

Who can get a Buy to Let mortgage?

Generally anyone, as long as you’re living in the UK and you’ve got the right level of deposit. First time Buyers or non-homeowners might struggle to get a Buy to Let mortgage, but usually it’s not restricted.

How does a Buy to Let mortgage work?

One of the key differences to a residential mortgage is that affordability is calculated on the rental income of the property, rather than the individual’s personal income. All lenders use different calculations, so using an advisor would be the best way to ensure that you still have got the right options in place.

Otherwise they work in it in a similar way to a Standard Residential Mortgage. You’re still borrowing money against the purchase of a property.

How much can you borrow on a Buy to Let mortgage?

It can depend on the personal income tax brackets that you’re in. A criteria that some lenders have is if you’re earning more and you’ve got a high tax bracket, that might change how much you can borrow.

Just like when you’re buying residential property, you might be able to borrow more on a five year Fixed-rate deal than a two year deal, as the risk to the lender is a little bit lower. Again all lenders have different criteria, so you’ve got to use an adviser to make sure that you’ve got the most suitable deals.

What deposit do I need for a Buy to Let mortgage?

You will need a much higher deposit than for a normal First Time Buyers purchase. You need at least 20%, but to get the most suitable deal you need a 25% deposit.

Is there anything else to consider about Buy to Let criteria?

They are all different, but just to give you some examples, some lenders will insist that you have a minimum personal income, others might say you need to be a homeowner and some will say that you can’t have a family member become a tenant of the property that you’re buying.

It’s about finding the lender that best suits your situation. There are lots of lenders with lots of different criteria, you’ve just got to  find one that suits.

What are the costs involved with Buy to Let mortgages?

Buying a Buy to Let property will cost the same as a residential property. The seller isn’t going to sell it any cheaper just because you’re a Buy to Let investor. It could be more expensive to buy a property because you’ve still got legal fees, but you will also have the additional rates of stamp duty to pay, which will increase the cost of buying property, depending on your income tax band.

Other costs that you need to consider as a landlord are insurance, property management, and letting agents. It can often be a lot more expensive than people think, so it’s important to review all of the different costs.

Is it illegal to rent out a house without a Buy to Let mortgage?

I wouldn’t say it’s illegal, but yes lenders must be able to accommodate any change in any circumstances. You can ask your current provider to do a consent to let or a consent to lease for a short time, which is the lender giving you permission to rent the property out to somebody.

It’s not necessarily illegal, but if you didn’t ask for permission from your lender and you rented it out, any insurance that you have on the property might not be valid. So there are some pitfalls if you don’t ask for permission.

Is it illegal to live in your own Buy to Let property?

Similar to the last question, it isn’t illegal, but again lenders must be able to accommodate any change in your circumstances. What I would say is that you must tell your lender. Don’t try to hide it, because you could be doing damage in the future if something were to go wrong.

Interest-only versus Repayment on a Buy to Let mortgage

It really depends on whether you’re looking for a monthly Income. To get the most money out of your rental income, you would want to do an Interest-only mortgage, because it will be much cheaper than a repayment mortgage.

If you’re looking for long-term capital growth, and you want to benefit from the equity in the property that you can sell in the future, then you want to do a Repayment mortgage so that you’re always chipping away at the debt. Everybody’s situation is different and there’s no right way or wrong way to do it, it’s just about the personal needs of the borrower.

Do I need a solicitor for a Buy to Let?

Yes, the same as when you’re buying a residential home. Be sure to ask about stamp duty, as it changes all the time so ask the solicitor how much your stamp duty is going to be. It could be the difference of not hundreds but thousands of pounds difference, so you definitely need a solicitor to go through that with you.

How many Buy to Let properties can I own?

Really, as many as you want, but I wouldn’t want to commit to saying an unlimited amount.

There are lenders that will say you can only have two or three, there are others that allow ten. There are also lenders that don’t really mind how many you’ve got because if you have a Limited Company Buy to Let, then it is your business to have as many as what you want.

As long as it’s still affordable and all the bills are still being met, there are specialist lenders that will allow you to have a large amount.

Are you a portfolio Landlord once you own a certain number of properties?

It’s usually when you own three or four that you’re then cast as a portfolio landlord. It’s a nice title, I’m not really sure what difference it actually makes if your position is a portfolio landlord.

Is there anything else to consider?

An important difference with Buy to Lets as opposed to residential mortgages, is that a lot of Buy to Let lenders will only deal with a broker, so to get the right deal you need to speak to us. It’s not an option with Buy to Let, to do it online yourself or go to your bank, there are a lot of lenders that will only deal with brokers.

Get in touch with us to make sure that you’ve got the most suitable deal. You also still need to have your Decision in Principle as a Buy to Let buyer, because you still need evidence that you have a mortgage lender willing to support your purchase. You might still need help with the estate agent, we’ve got the experience of dealing with them and can help to advise you about which property would be a good purchase for a rental property.

Your property may be repossessed if you do not keep up with your mortgage repayments.

Some buy to let mortgages are not regulated by the Financial Conduct Authority 

Why choose Fiducia Mortgage Solutions?