Private rental properties are an essential component of the housing market in the UK. Some of these properties are owned by professional landlords with large property portfolios and others by accidental landlords with a single property. Whichever of these vastly different categories that you fall into, you may require a mortgage. This article explores buy-to-let mortgages, and the options that are available for landlords, to help you decide which would best suit your requirements.
A landlord is someone that has one or more properties that they rent out, this may be via a letting agent or privately; the property may be occupied by a single person or family or may be shared accommodation. Whether a landlord has one property to rent out or multiple, it is likely that they will need a mortgage to cover the purchase.
Some people manage a property portfolio that they rent out as their job and main source of income. Whereas an accidental landlord is often someone that owns a property, has decided to move elsewhere, and opts to rent their property out instead of selling it. The difference in these two scenarios is vast, and finance requirements will differ enormously.
A buy-to-let (BTL) mortgage is borrowing a sum of money to finance the purchase of a residential property that you intend to let out. If you are an accidental landlord, the first step is understanding that under the terms of most standard mortgages you are not allowed to let out your property. Some lenders will allow it for a set period by agreement, and often charge a small fee. However, as a long-term solution you would need to transfer to a buy-to-let mortgage.
Whether you are financing a single property or multiple properties, you should seek independent advice to ensure that you are getting the best product for your requirements. A commercial finance broker such as MC Commercial Finance can help you. Particularly in the case of professional landlords, a commercial finance broker is better qualified to support your requirements and help you to find the best deal for your needs. A buy-to-let mortgage broker may be sufficient for a one-off buy-to-let mortgage.
Single Buy-To-Let Mortgage
Lending and repayment criteria for buy-to-let mortgages are very different than for a standard residential mortgage. You should also be aware that due to different affordability requirements and criteria a buy-to-let mortgage would not allow you to later live in the property yourself; you should consider this if you only intend to let temporarily.
Some of the differences between standard and buy-to-let mortgages include:
- Repayment type
- Loan to value (LTV)
- Borrowing based on monthly rental
- Personal credit rating
- Personal earnings and existing borrowing
Standard home-buyer mortgages are usually repayment mortgages, each monthly payment pays an amount of interest plus a portion of the value of the loan; at the end of the mortgage the property is owned and paid for. Buy-to-let mortgages are usually interest only, this makes the repayments lower, but if you want to eventually own the property outright you need a plan to pay the value that has been loaned. Professional buy-to-let landlords would plan on house values increasing over time; therefore, they sell the property, pay off the loan, and retain the difference as profit.
Buy-to-let mortgages often have a higher loan to value requirement, 75% is the standard maximum LTV meaning that you would need at least 25% equity or deposit to proceed. Borrowing for a standard mortgage is usually based on credit rating, up to 5 x income minus existing borrowing, and any adverse credit history. BTL mortgages still require a good rating, and usually have a minimum earning requirement, often around £25k per year; however, a large focus for affordability is on the borrowing versus potential rental incoming. Rental income is usually required to be at least 125-145% of the interest payment you will be making.
Buy-To-Let for Professional Landlords
For professional landlords there are specialist products available, allowing you to purchase multiple buy-to-let properties with a single loan. You may also be securing the loan as a limited company; this takes personal responsibility away, but you will need to demonstrate that the company can repay the loan, the viability of the business, and meet the LTV, and borrowing versus rental income criteria. In this circumstance, securing the support of a dedicated commercial finance broker is essential. Book an appointment with MC Commercial finance today. A finance broker can help you to navigate the best products for your requirements, ensure that you get the best deal, and help with the application process.
MC Commercial Finance Ltd is authorised and regulated by the Financial Conduct Authority
(Reg number 948719).
MC Commercial Finance Ltd is an independent credit broker not a lender.
Company Registered Number: 12472873