Buy to let mortgages

If you want to buy a property and then rent it out to tenants, rather than live in it, you will need a buy to let mortgage.

What is a buy to let mortgage?

Buy-to-let (BTL) mortgages are for landlords who want to buy a property and then rent it out.

Buy-to-let mortgages are very similar to standard residential mortgages, but they’re much harder to get: you’ll usually need a deposit of at least 25% (75% LTV), but it could be as high as 40% (60% LTV).

Buy-to-let mortgages are available in all the usual flavours: fixed rate, tracker, and variable – but the interest rates are a little higher than standard homebuying mortgages.

Most buy-to-let mortgages are usually interest-only. Interest-only mortgages require you to have a repayment vehicle – some way of paying off the principal at the end of the mortgage. The simplest answer, as long as house prices haven’t gone down, is to sell the property – or, in the case of a landlord, to sell another property.

Why get a buy to let mortgage?

During the property boom a few years ago, landlords could make a lot of money by buying property and renting it out. Today the property market is softer – but the stock markets are volatile and savings accounts pay you almost nothing. With low interest rates being offered by lenders, investing in property via buy-to-let is still quite an attractive proposition.

Can you get a buy to let mortgage?

Lenders are quite strict with buy-to-let mortgages. You will usually need a large deposit (between 25% and 40%), you may need to be over a minimum age, there’s normally a limit on how many buy-to-let mortgages you can have (three or four), and the total amount borrowed through buy-to-let mortgages can’t exceed a certain amount (usually £1 to £2 million).

The lender will also assess the affordability of the buy-to-let mortgage based on the expected rental income from the property. Most lenders will look for rental income that’s at least 125% of the mortgage’s monthly repayments. This is to provide a buffer of money when the property is vacant – or if you end up with a bad tenant that doesn’t pay their rent on time.

Buy to let mortgages are risky

Becoming a landlord is a major undertaking. Make sure you are ready to take on the risk of a property that might go down in value, might remain empty for long periods of time, or tenants that don’t pay their rent.

Don’t forget that there are other costs associated with being a landlord, such as letting agent fees, renovations, maintenance, furnishings, and building insurance.

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Last updated: 17 April, 2018

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