Buy-to-Let Mortgage Criteria: What You Need to Know
It goes without saying that adding new assets to your property portfolio is much easier if you have a strong grasp on your finances.
Here we look at the intricacies of making a buy-to-let mortgage application, including the key questions, common myths and the criteria you need to meet.
How Does a Buy-to-Let Mortgage Work?
Applying for a mortgage with the intention of renting the property out is broadly similar to securing finance for a home that you plan to live in yourself.
However, there are some notable differences:
This isn’t a concrete rule, but it is often the case that buy-to-let interest rates are higher than those attached to residential loans. This is where it pays to work with a broker who can compare the market for you, finding you the best possible rates.
It’s widely assumed that lenders will only offer buy-to-let mortgages if the buyer has a substantial deposit to put down. However, this isn’t always the case and while there are lenders that will only offer a 70% loan (meaning you have to part with 30% up front), more companies will now offer more attractive deals, even up to 90%, as the market becomes more competitive.
As a landlord, you’ll find that banks will expect you to have a higher income than the average residential applicant. After all, there’s a strong chance that you’ll also be making repayments on your own home (and possibly other investment properties). While the rental yield is factored in, a lender will want extra reassurance that you have a strong grip on your finances.
Again, the exact criteria will differ from bank-to-bank, but most will set a minimum annual income of £25,000 as their threshold for approving a first-time buy-to-let mortgage.
Many lenders will set a limit on the number of different mortgages that one person can have, while also putting a cap on the amount of money they can borrow.
With the changes to the landlord tax system now in effect, it’s imperative that anybody planning to apply for a buy-to-let mortgage is fully up to speed. Capital Gains Tax payments now need to be made within 30 days and the reforms also mean that mortgage interest tax relief will be scaled back to 20% by 2020.
Last year, the government announced that Stamp Duty Land Tax on second purchases would be increased. Before you make your application, make sure you read our in-depth guide to the landlord tax reforms. You can download the full guide from here.
Changing a Mortgage to Buy-to-Let
If you decide that you want to switch your existing residential mortgage to a buy-to-let version, you need to inform your provider. They will need to issue you with “consent to let” approval. This isn’t going to be an issue for seasoned property investors with multiple assets, but it’s still worth understanding how the system works.
Can I Apply for a Buy-to-Let Mortgage in the UK if I’m Based Overseas?
There’s a lot of myths and misinformation surrounding buy-to-let mortgage criteria for investors who are no longer based in the UK. For example, some investors feel they are only able to apply for finance from lenders in their adopted country. This isn’t the case.
Naturally, the process becomes a little more complicated when applications are being handled across international borders, not least when you consider currency fluctuations. This guide explains how overseas investors can get the most value from their purchase.
The Current State of Play in the Mortgage Market
As we’ve already touched on, the recent tax reforms, coupled with ongoing political/economic uncertainty, will inevitably have an impact on the buy-to-let mortgage market.
While smaller buyers may find the going a little tougher than in previous years because of the changes to the tax relief system, seasoned investors could benefit. There will remain a strong market for lettings because there are so many people who either can’t afford to buy, or are putting off buying until later on in life, This, coupled with current mortgage rates being at a record low as banks try to attract more customers, means it’s potentially a good time for investors to take advantage.
Seven Capital sells a huge number of properties off-plan, which as we discussed here, can mean that the cost of investment is lower than the finished property would cost – depending on how early you make your purchase and the property going up in value during the build. Providing the property then offers a good rental yield, it’s an appealing proposition.
When making any investment, it’s vital that you make sure you’re getting good advice from trusted sources – your developer, mortgage broker and solicitor to name a few. At Seven Capital, our award-winning customer service team can help to point you in the right direction of our recommended professional advisors, according to your requirements.
For more information about property investments, please don’t hesitate to contact our team.