Landlord Buy-to-Let Mortgages
Many investors turn to the buy-to-let market to provide them with a good yield on their investment. The benefits are two-fold, with regular rental income from tenants plus long-term capital gain.
With mortgage interest rates on the rise, it is more important than ever to secure the right finance. Whether you are buying in your personal name(s) or through a Limited Company, at Taylor-Brown Financial we are on hand to guide to find you the most competitive mortgage deal for your circumstances.
We assist both aspiring landlords with purchasing their first buy-to-let property and established landlords to expand their portfolios. To find out how we can save you time, hassle and money, please get in touch.
What is a Buy-to-Let mortgage?
A buy-to-let mortgage is specifically for landlords who are looking to secure finance against a property that is rented, or due to be rented out.
Buy-to-let mortgages (also known as mortgages for landlords) differ from traditional residential mortgages, in that the borrowing capability is typically reliant on the property’s rental potential. This is as opposed to the landlord’s personal affordability, which is usually assessed on income and expenditure.
As a landlord, your personal circumstances are taken into consideration, however, lenders will assess your ability to make the monthly mortgage payments in the event of any rental voids along with ongoing property-related maintenance costs. Due to this, many buy-to-let mortgages are considered ‘non-regulated’ by the Financial Conduct Authority (FCA), as they are considered commercial loans.
Limited Company Buy-to-Let mortgages
The tax relief landlords used to enjoy through buy-to-let property owned in their personal name is not as favourable as it once was. As a result, we are seeing more and more landlords seeking to purchase their investment property or incorporate their portfolio, into a limited company.
Assessing whether this route is financially advantageous for you requires specialist tax advice. So, before speaking to mortgage brokers it is important you seek independent advice from a professional tax adviser.
What is the application process for limited company buy-to-let mortgages?
Whether you are purchasing the property in your personal name(s) or through a limited company, the mortgage application process is very similar.
For a limited company buy-to-let mortgage, you will be personally assessed as a director of your limited company, including any credit checks/affordability assessment. You will also be required to have an SPV (Special Purpose Vehicle) and an appropriate SIC code (Standard Industrial Classification), to confirm the nature of your company.
Typically, mortgage lenders who consider lending to limited companies prefer evidence that the SPV is not an actively trading business. Many will only consider a holding company for property ownership.
There are mortgages available for trading companies, but this is more of a niche market mainly targeted by specialist lenders, so mortgage rates will likely be higher.
In addition, the company directors will usually be asked to provide a personal guarantee to the lender, regardless of the property/properties being wrapped within a limited company. For this reason, it is normally a requirement that company directors seek their own independent legal advice, at their own cost, to ensure they understand the potential implications of their personal guarantee – lenders will insist on it.
Can First Time Buyers get a Buy-to-Let mortgage?
Yes, some lenders provide buy-to-let mortgages to first-time buyers, but many will only lend to existing homeowners. The lenders that do offer them generally consider first-time buyers more of a risk for buy-to-let products, as they don’t have evidence of existing mortgage payments being made on time.
For example, the minimum loan to value for a first-time buy-to-let mortgage is around 75%, meaning buyers will need a 25% deposit. There will usually be a minimum age (21 or 25 years) and the lender will require evidence of employment and income. They will also conduct a thorough credit history check.
For some first-time buyers, buy-to-let is a more affordable way to get on the property ladder. We see many of our clients who work in Cambridge for example that can’t afford a residential mortgage to buy a property in the city, as house prices have risen significantly over the last decade. Instead, they look at cheaper areas of the country where rental yields are considered greater, to buy their first property with the aim of renting it out long-term.
Lenders will assess this differently to a traditional buy-to-let mortgage, as your borrowing will be subject to lenders’ income multiples on a residential affordability basis, typically a maximum of 4.5 times your gross annual income.
Repayment vs. Interest-Only buy-to-let mortgages
We provide advice to many landlords on the pros and cons of repayment mortgages versus interest-only mortgages.
Many investors prefer an interest-only mortgage for their buy-to-let investment, as it helps keep monthly repayments as low as possible and therefore maximises their return on rental income. Quite often, the repayment vehicle for an interest-only mortgage is the sale of the property before the end of the mortgage term, which many investors actively plan to do.
Keeping your monthly repayments low allows you to be more financially resilient to periods when your property experiences rental voids, something many landlords fail to consider when researching their options.
Like a repayment mortgage, many interest-only mortgages will allow you to make overpayments, typically up to 10% of the mortgage balance per annum. The key difference, is you aren’t committed to the additional monthly payment, which is beneficial if you have any rental voids or higher-than-usual property-related costs.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Find the right buy-to-let mortgage with Taylor Brown Financial
If you are seeking a mortgage for a buy-to-let investment in East Anglia and the surrounding areas, then Taylor-Brown Financial can help you secure the most competitive deal available to you. As a mortgage broker, we have access to a wide range of mortgage from a variety of lenders.
Not only that, we can manage the entire mortgage application process on your behalf, freeing up your time to concentrate on your business interests.
Book a mortgage consultation with us today >
Do I have to take out a Buy-to-Let mortgage to rent my property out?
Not necessarily. There are instances when you may look to rent out your current property rather than sell it, for example, a job relocation. In this case, it is important you seek ‘consent to let’ from your current mortgage lender before securing a tenant. A reputable letting agent will require evidence of this before they market your property for rent.
There are no guarantees your lender will provide you with the consent to let, but often they will grant you permission once they have assessed your change in circumstances. Most of the time, you will find you will be allowed to retain your existing mortgage product too, avoiding an early repayment charge. Once your mortgage product is up for review, we usually recommend refinancing it to a buy-to-let mortgage product.
What is the minimum deposit I need to purchase an investment property?
Historically, you would usually expect to need a minimum of a 25% deposit to secure a buy-to-let mortgage. At present, some mortgage lenders offer 80-85% loan-to-value (LTV) mortgages, so in theory, you could look to put just a 15-20% deposit down.
Obtaining these higher loan-to-value mortgages is of course more complex, as the rental income may not be sufficient to support it. But there are many lenders who will consider ‘top-slicing’, which means utilising your personal income to support any shortfall in the rent.
Assuming you have a healthy gross annual income versus expenditure, this could be a beneficial way to reduce the amount of deposit required to support your purchase.
Can I rent my property through Airbnb?
Does stamp duty work differently for Buy-to-Let purchases?
Can I remortgage my current property to help me buy a new home?
This is a very popular option for homeowners who would like to retain their existing property as an investment, whilst simultaneously purchasing a new residential property to live in.
We call this a ‘let-to-buy’ remortgage, as you are re-mortgaging your existing property onto a buy-to-let product, with the aim of renting it out on completion. These types of ‘consumer’ buy-to-lets are regulated by the Financial Conduct Authority.
Contact us for mortgage advice as early as possible to understand your options, as you will likely be considering buy-to-let mortgages and residential mortgages at the same time, which can be very confusing.
The Financial Conduct Authority does not regulate some forms of Buy to Lets.
