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Buy-to-Let Mortgages: Basics for Beginners

From buy-to-let mortgage rates to deposits to affordability criteria, find out everything you need to know about buy-to-let mortgages.

Faye deGavre

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Jun 11, 2021

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5 min read

Buy-to-Let Mortgages: Basics for Beginners

If you’re planning to buy a property with the intention of renting it out (and you aren’t a cash buyer), you’ll need a buy-to-let mortgage. This type of mortgage is different from the residential mortgage you may already have for your own home, so prepare yourself for a whole new ball game. To help make sense of it, we’ve rounded up what you need to know about buy-to-let mortgages from eligibility to prepping your application. By the end, you should have a better understanding of the basics. Let’s get to it.

What is a buy-to-let mortgage?

Put simply, a buy-to-let mortgage is a loan specifically designed for landlords who want to buy a property with the intention of renting it out to tenants. It’s a different type of mortgage from a residential mortgage, which you acquire when purchasing your own home to live in.

How to get a buy-to-let mortgage?

If you’re looking to buy a property to rent it to other parties and you’re not a cash buyer, you will likely need a buy-to-let mortgage. In order to be eligible, you must:

  • Be looking to invest in residential property (namely, houses and flats)
  • Have financial stability to repay the mortgage (with evidence to prove this)
  • Have a good credit rating
  • Earn over £25,000 annually
  • Be below a certain age (as most lenders have stipulations regarding the age you are when your mortgage ends)
  • Own your own home (while not necessarily a hard and fast rule, lenders can be wary of first-time buyers)

The lender will look at a range of factors when considering your application, including:

  • The rental yield you would achieve
  • Your age
  • Your credit history
  • Your current income
  • Your current lending commitments

If your application is not successful, one of these factors could be letting you down.

How do buy-to-let mortgages work?

Most buy-to-let mortgages tend to be interest-only (compared to residential mortgages that are usually capital and interest loans). This means the landlords only pay the accruing interest on the mortgage, rather than making repayments on the loan itself. This tends to result in lower monthly payments for the landlords.

At the end of the term, the landlord will still have the full amount borrowed left to pay back. At this point, landlords can either remortgage, sell the property (if the value hasn’t decreased) or dip into their savings to cover the cost.

What about buy-to-let mortgage rates?

Buy-to-let mortgages are available as fixed, variable and tracker deals, with arrangement fees averaging (at time of writing, early 2021) 1.5% to 2% of the mortgage. The deals can vary, but generally speaking, fixed-rate mortgages allow landlords to know what costs to budget for. However, variable or tracker rates can sometimes be cheaper, but are subject to change.

Buy-to-let mortgage rates are typically higher than residential rates. But as with any type of mortgage, the rates will vary depending on the deposit you put down and the risk you present to the lender.

In most cases, you can land a good rate if you put down a high deposit and opt for an interest-only mortgage.

How much deposit for a buy-to-let mortgage do I need?

Lenders are more cautious around buy-to-let mortgages. After all, there is a higher risk as landlords can often encounter issues affecting their income such as rent collection and void periods where the property is empty. Because of the increased risk, you will need to pay a larger deposit. Usually, this is between 25%-30% of the total property price. If you’re looking for the best buy-to-let mortgage rates, consider putting down a deposit of 40% or more.

What do you need for a buy-to-let mortgage?

To apply for a buy-to-let mortgage, you first need to be sure that you are ready for the ongoing financial and time commitments. Ensure you have enough funds to cover the mortgage, building insurance, contents insurance (if furnished), maintenance, emergencies, void periods, a Letting Agency (if you’re using one) and taxes.

You’ll need to gather your documents, including the calculations you’ve made for the property. Check that you are eligible for the mortgage (see the criteria above). Your expected monthly rental income should be at least 125% of the monthly interest payments on your mortgage.

Before applying for a buy-to-let mortgage, gather these documents:

  • Utility bills
  • P60 form
  • Payslips for the last three months, or proof of income and tax returns if you’re self-employed
  • Proof of existing mortgage statement
  • Evidence of any additional income
  • Recent bank statements
  • Proof of identity (passport or driving license)
  • Details of the property you’re looking to buy

How many buy-to-let mortgages can I have?

This is a very common question for those eager landlords looking to expand their horizons by purchasing more properties. It’s important to note that lenders are exceedingly cautious about buy-to-let mortgages, and multiple ones more so. Many lenders will have a threshold of how many mortgages or how much you can borrow from them.

Plan for all possibilities

Mortgages are a long-term commitment. And that’s just the beginning. As a landlord, you have responsibilities to maintain a property and keep it turning over. However, it’s not uncommon for a rental property to experience void periods where no rent is coming in. Likewise, pipes can burst or boilers can break, which will require urgent (and possibly expensive) repairs.

To protect your financial health, prioritise a savings plan, create an emergency fund and be prudent when it comes to contingencies.

Find your next buy-to-let property

Ready to get started? Take a look at our beginner’s guide on purchasing a buy-to-let property. At Boomin, finding your next buy-to-let property is easy to book viewings online 24/7.

Once you have the keys, make your property visible the moment you book a free rental valuation. With Boomin, you can drive up interest instantly and enable potential tenants to book viewings online, 24/7. Find out more how Boomin can help rent out your house with ease.

Faye deGavre

Content Writer