Expert Guide to Buy-to-Let Mortgages

When an investor looks to purchase a Buy-to-Let (BTL) property, they’ll generally utilise either cash or a buy-to-let mortgage. Buy-to-Let mortgages work similarly to ‘regular’ mortgages, with some key differences.

Who can get Buy-to-Let mortgages?

Buy-to-Let mortgages are not just made available to people that want to invest in property. There are other criteria that need to be filled before the application is successful:

The applicant needs to own their own home, whether they’ve bought outright or have an outstanding ‘regular’ mortgage.

The applicant should have a good credit record and not be stretched with other borrowings such as credit cards. Many lenders will also struggle to approve a buy-to-let mortgage for those who earn under £25,000 plus a year.

Finally, the person applying for the Buy-to-Let mortgage will need to be under a certain age. Lenders tend to only offer mortgages to those who will be under 75 at the end of the lending period. For example, a 30-year mortgage at the age of 45 would end on the last year of the upper-age limit.

Where to get a Buy-to-Let mortgage?

Although Buy-to-Let mortgages are less available than regular mortgages, they are offered by most large banks and specialist lenders around the country. Always consider talking to a mortgage expert before taking out a buy-to-let mortgage as they can inform you of the difference between mortgage types and find the most suitable offering for you

Remember that if you use a price comparison website to find your buy-to-let mortgage, not all of the sites will give you the same results, so make sure you use more than one site before reaching a final decision.

Also, remember that there are often headline rates offered on a mortgage but these aren’t final – a number of other fees and charges can be involved.

UK House Market - House image

How do Buy-to-Let mortgages work?

Buy-to-Let (BTL) mortgages work like regular mortgages but have some key differences that set them apart. First and most importantly, fees tend to be much higher than a regular mortgage, with interest rates that are usually higher.

In the current market, interest rates are at some of the lowest they’ve ever been. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value, although it varies between 20% and 40%.

Many BTL mortgages work on an interest-only basis – meaning you don’t have to pay monthly but at the end of the term you repay the original loan in full. Some mortgages can also be made available on a repayment basis.

How much can you borrow for Buy-to-Let mortgages?

The maximum amount you can borrow on a Buy-to-Let mortgage is decided primarily by the amount of rental income you’re expecting. It’s usually required to be around 25 – 30% higher than the mortgage payment.

If you’re looking to find out what rental income you can be expecting, consider doing the research. Speak to local lettings agents, check the local listings and identify past performance.

Buy-to-Let Mortgage Tax relief explained

In April 2017, the system of calculating tax on rental income for landlords was altered significantly. By April 2020, landlords will no longer be able to deduct mortgage expenses from rental income and will instead have a 20% tax credit on the net rental income. This system is being implemented in phases, with the deductible amount being decreased by 25% every year from 2017 to 2020.

Since the system changed, landlords have faced phased decreases in the percentage of mortgage payments that can be deducted from rental income and increases to the percentage of these mortgage repayments that qualify for a new 20% tax credit.

Is it better to buy a Buy-to-Let property with cash or mortgage?

There’s a lot to consider when buying a buy-to-let property, whether it’s outright or through finance.

Paying cash and buying outright obviously eliminates the loan and any associated interest, while also removing associated service and admin charges. The process for a cash buyer is generally quicker and offers the opportunity for a cash discount in certain cases.

However, as you’d expect, buying with cash can mean a large sum of money is essentially tied-up for long periods of time. This can severely limit your options down the line, especially if it turns out the property needs major repairs.

Cash also has tax implications – mortgage interest payments are tax-deductible (at least for another year) so can be less of an obligation to consider.

While for some a mortgage is a necessity, it can also be a wise choice for an investor that has options. Opting for a mortgage allows for an investor to diversify across multiple investments, rather than ploughing all of their money into one single asset. This can allow for multiple streams of rental income and while it comes with the risk of multiple void periods, it’s essentially how a majority of BTL landlords start their property portfolio.

For those that choose mortgages, it’s important to be comfortable with the payments, especially when there could be a break in the tenancy. Mortgage rates can also rise, which would obviously change your financial situation.

Generally, it’s very difficult to second-guess price rises and falls, so focus should be on getting a property that has lasting appeal and an area that has ongoing demand. Buy-to-Let should be approached as a medium to long-term investment and having a mortgage can be a good fit for that strategy.

If you’re more interested in a short-term investment then a cash purchase may be more advisable, especially as it’ll mitigate further costs down the line.

As an investor, whether you choose to opt for a mortgage or a cash purchase is entirely down to your individual strategy and financial situation. While both are viable options, a mortgage tends to be better for the long-term strategy that suits Buy-to-Let, allowing for more diversification of funds and avoiding having all of your money in one asset.


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