Buy to Let

Unlike a residential mortgage, where the amount you can borrow is based on your salary and your outgoings, a Buy to Let mortgage is assessed on the rental income that the property is likely to generate. Lenders will typically need the rental income to be at least 125% of the monthly mortgage payments (on an interest only basis) which means that means that if your mortgage will cost £800 a month, the rent will need to be at least £1,000 a month.

Most lenders will also require you to be earning an income yourself. Try our Buy to Let calculator to see how much you could borrow.

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As with any type of mortgage, the more you can put down as a deposit, the better the mortgage deal you could get. A lower mortgage rate means lower monthly payments and a greater margin between your rental income and your mortgage costs.

As a rule, you’ll need a deposit of around 25% or more of the property’s value, although some lenders will require as little as 15%, provided the rental income is sufficient.

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Generally speaking, if you are a private landlord and renting a property that will be your tenants’ home, then you’re likely to need an Assured Shorthold Tenancy (AST).

When applying for a Buy to Let mortgage, the mortgage lender will insist that you have an AST and may ask to see a copy. There’s more information about tenancy agreements on the GOV. UK website.

Just as you should be doing your research and choosing a property that is suitable to rent out, so, too, mortgage lenders will want to make sure that the property they’re lending against is a safe bet.

While lenders will want to make a decision based on the specific property, its location and the condition it’s in, they will often have general restrictions on certain types of property. These can include:

• New build flats. Although it can depend on the area, Buy to Let mortgage lenders will typically require a bigger deposit to be put down if you’re buying a new build flat.
• Ex-local authority. Again, dependant on the area and if a flat, how many privately owned flats there are in the same block.
• High-rise flats. Lenders will usually have a restriction on how many floors there are in the block.
• Flats above commercial premises such as restaurants, shops and offices.
• Holiday homes. A lender will want to make sure that the property can earn a regular rental income, not just for a couple of months a year.

These are only examples and if buying a property like this, it doesn’t mean that you won’t be able to get a mortgage at all. There will be restrictions though and this is where expert mortgage advice can be invaluable as a broker will know which lenders to approach.

The simple answer is yes, but you may be limited when it comes to getting a mortgage. The first question to ask is, are you a first time landlord or a first time buyer? This is key as a large percentage of lenders need you to own your own residential property (possibly for at least six months) before they will offer you a Buy to Let mortgage. Some lenders just need you to own a property, so you could have another Buy to Let property but live in rented accommodation.

If however you are a complete first time buyer (or don’t currently own a property) then your mortgage options will be limited. An adviser will know the best lenders to speak to if you fall into any of these categories.

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If your property is going to be let to several tenants who aren’t members of the same family, it may be a ‘House in Multiple Occupation’ (HMO). A property is classed as an HMO if at least 3 tenants live there, forming more than one household and if toilet, bathroom or kitchen facilities are shared. Depending on the type of property and where it is, an HMO licence may be required – check with your local authority whether a property is deemed to be an HMO and whether a licence is required.

When it comes to getting a mortgage on a property classed as an HMO, the choice of lenders will be limited but an adviser will be able to help.

You can find more information on HMOs here.