Buy to let mortgage advice

One can get a decent income when it comes to rental properties in the United Kingdom. It is why financial institutions like banks are offering buy-to-let (BTL) mortgages to people who want to earn a considerable passive income. Aside from the prospect of earning money, purchasing a property offers capital appreciation in the long run.

Property rentals across the U.K. have been increasing in recent years, despite the relatively flat property prices, as more people go after a limited rental property supply instead of buying their own homes. As a result, BTL investment yields have risen.

Who can get a BTL mortgage?

People who seek to invest in flats and houses can avail of buy-to-let mortgages. As buying property is risky, one should not get a BTL mortgage if he/she is not willing to take the risk. A person can struggle with a BTL mortgage if he/she does not own a house.

Lenders may also put a cap on the applicant’s age limit. This means the BTL loan applicant must be 70 to 75 years old when he/she is set to finish paying the mortgage. If a 45-year-old applicant takes out a 25-year loan, payment must be finished when he/she is 70 years old.

Moreover, a mortgage applicant must also earn at least ₤25,000 annually to avail of the loan. This is to assure that the person can meet payment obligations during periods when a property has no tenants.

Income Assessment

BTL mortgages are mainly assessed on the rent the potential owner is charging. The rent to charge should be 125% of the monthly mortgage due. For a monthly ₤800 mortgage due, one should be charging around ₤1,000 a month.

How do BTL mortgages work?

There are a few differences between a BTL mortgage and a standard mortgage.

  • BTL fees tend to be higher. For example, a ₤100,000 loan can command fees from ₤P1,000 to ₤3,500. For such variances, a person must shop around and hire a competent BTL mortgage adviser.
  • BTL mortgage interest rates tend to be higher.
  • The minimum deposit for a BTL mortgage is about 25% of the property value. Certain lenders offer deals with a 40% deposit while others seek a 20% deposit.

A lot of buy-to-let mortgages are interest-only. It means a person does not have to pay money off the lump sum borrowed every month. BTL mortgage lending, unlike getting a mortgage on property one seeks to live in, is not regulated by the FCA (Financial Conduct Authority) unless one seeks to lease the property to a family member like a civil partner, spouse, grandparent, child, sibling, or parent.

What to do during lean periods?

A person has gotten his/her BTL loan approved. However, there is no guarantee that a property always has tenants. There may be ‘voids’ when rent is not paid or the house is not occupied, and one needs to be financially protected to meet the monthly mortgage obligations.

During times when the property is occupied, the owner should utilize some of the rent to add to savings. The owner must also have savings for repair bills like a blocked drain or a boiler breakdown.

One should also not assume that the property could be sold to repay the mortgage. If house prices dip, the property might not sell for a good price. If such a situation happens, the property owner may be paying for the mortgage difference.

Where to get a BTL mortgage?

A lot of major banks and lending companies offer BTL mortgages. Before a person takes out a buy-to-let loan, he/she should talk to a mortgage broker, who can help pick out the right deal. Comparison websites are also good starting points for people trying to find a buy-to-let mortgage that is suited to their needs.