Buy to Let

Who can get a buy to let mortgage?

When you consider renting out your property, you’ll require a buy to let mortgage. However, many lenders perceive these mortgages as riskier. They often have specific criteria you must meet for approval. These criteria can vary depending on the lender, but here are some common requirements:  

• Maintaining a strong credit history is typically essential. It’s beneficial if you have minimal other debts, such as credit card balances. 
• Some lenders may require you to already own your primary residence, whether it’s fully paid off or still under a mortgage. 
• You may need to demonstrate your regular income from your job or business, separate from the rental income. 
• Usually, this income requirement is around £25,000 or higher per year. If your income is lower, some lenders may hesitate to approve your buy-to-let mortgage application. 
• Age is a consideration too. Most lenders have an age limit, often around 75 years old, although some may set it lower. 
• Lenders typically state that you can’t borrow more than approximately 75% of the property’s value, meaning you need at least a 25% deposit for a buy-to-let mortgage. 
• The amount you can borrow often depends on the rent you plan to charge tenants. Typically, your rent should cover at least 125% of your mortgage payments. 

Remember that these criteria can vary depending on the lender. It’s advisable to discuss your specific situation with potential lenders to understand their requirements for a buy to let mortgage.

How do buy to let mortgages work?

Buy to let mortgages may seem familiar, but they come with several significant differences:

• Generally, they come with higher fees.
• Interest rates tend to be on the higher side.
• The minimum deposit typically hovers around 25% of the property’s value, although it can vary between 20% and 40%.
• Most buy to let mortgages are structured as interest-only, meaning you pay the interest each month but not the principal loan amount. By the end of the mortgage term, you’re expected to repay the original loan in full. However, you can also find buy-to-let mortgages with a repayment option.

In many cases, buy-to-let mortgage lending isn’t subject to regulation by the Financial Conduct Authority (FCA). However, there’s an exception: if you plan to rent the property to a close family member (like a spouse, civil partner, child, grandparent, parent, or sibling), these mortgages are considered consumer buy-to-let mortgages. They’re assessed based on the same strict affordability rules as residential mortgages.

It’s important to understand these distinctions, as they can significantly impact your decisions when dealing with buy-to-let mortgages.

How much can you borrow for buy to let mortgages?

When it comes to how much you can borrow, it’s closely tied to the rental income you anticipate receiving from the property.

Your lender will want to make sure that the rent you receive from the property will cover the mortgage payments and some extra. The amount extra can vary on your tax status and also if the property is going to be owned in your name or a limited company. 

Usually, lenders expect the rental income to be around 25–30% higher than what you’ll be paying for the mortgage.

If the property’s rental value isn’t high enough, the lender’s required loan-to-value (LTV) might be affected. This could mean needing a larger deposit.

To get an idea of potential rent, you can chat with local letting agents or check online rental listings for similar properties to see what they’re going for. This can help you gauge what’s reasonable in your area.

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