Buy-to-Let Mortgage

Get started renting out to tenants with a buy-to-let mortgage.

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Whether you’re a commercial landlord looking to generate income via rent or a homeowner renting out their property for a while, you could be eligible for a buy-to-let mortgage.

But what exactly does a buy-to-let mortgage entail? Are they really worth it? And how do you get started with one? Here, Proper Finance explore some commonly asked questions surrounding this type of mortgage option, as well as common eligibility criteria, their associated costs and more.


What Is a Buy-To-Let Mortgage?

As the name suggests, a buy-to-let mortgage is a type of secured loan designed for those who intend to rent out their property to tenants. These types of mortgages are used to finance the purchase of a property that the owners intend on renting out.

Whether you’re already an existing property investor or new to the landlord game, a buy-to-let mortgage can help support you in taking your first steps in the property rental market.



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How Do Buy-To-Let Mortgages Work?

Buy-to-let mortgages work similar to the standard, residential types of mortgages, with a few differences.

With this type of mortgage, borrowers will have to put down a deposit. The minimum deposit accepted is typically higher than residential mortgages, borrowers usually expected to put down a minimum of 25% the property’s value. While this is usually the minimum percentage accepted for a deposit, this can vary from 20% to 40%.

Many buy-to-let borrowers will also take out an interest-only mortgage, meaning they’ll only pay the interest on the mortgage in their monthly repayments until the end of the mortgage term. At this end stage, the borrower is then expected to repay the remaining full amount of the mortgage left.



Am I Eligible for a Buy-To-Let Mortgage?

The eligibility criteria for a buy-to-let mortgage can vary depending on the lender and the prospective borrower’s circumstances. However, most people applying for this type of secured loan will typically have to meet the following standard criteria:

  • A 25% deposit minimum (some may ask for up to 40%)
  • A minimum age requirement of 21+ for borrowers
  • A good credit score
  • A good history of borrowing
  • A minimum income (typically anything from £25,000 and up)

While a good credit score can often be required for a buy-to-let mortgage, for those with a bad credit rating or limited financial records, a higher deposit may be required to be in with a chance of getting approved.


How Much Does a Buy-To-Let Mortgage Cost?

The cost of a buy-to-let mortgage will vary depending on numerous different factors, including the following:

  • The loan term – the length of the loan term can affect the cost of it.
  • The deposit size – those with a bigger deposit can reduce the overall cost of the buy-to-let mortgage. They’ll often be a minimum deposit amount the lenders accept, but there are certainly options for low deposit mortgages.
  • The interest rate – the interest you pay back on the loan each month can also affect the overall cost of it.
  • The size of the loan – the amount you’re wanting to borrow will also impact the cost of the loan. The bigger the borrowing amount, the bigger the cost for the loan.

While monthly repayments required on a buy-to-let mortgage are typically only the interest, it’s important to have a plan for paying off the remainder of the loan at the end of its term. It’s common for buy-to-let borrowers to have for this end of loan payment in an ISA, or sell the property to pay off the debt that remains.


How Many Buy-To-Let Mortgages Can I Have?

The amount of buy-to-let mortgages you’ll be allowed to have will be dependent on the mortgage provider you go for and the amount they’re willing to loan to you.

While some buy-to-let providers will allow you to take out as many as you like (so long as you can afford it and have proved to them that this is the case), others will only allow you to borrow one or two mortgages with them.



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Is a Buy-To-Let Mortgage Worth It?

Whether or not a Buy-To-Let mortgage is worth it will depend upon what you’re looking to get out of it and your own personal and financial circumstances. Below, we’ve listed some of the top pros and cons for this type of borrowing option:


Benefits of Buy-To-Let Mortgages

  • You can earn rental income
  • Can cover mortgage repayments
  • It’s a long term investment you could gain from
  • Claim back certain costs of running the property on self-assessment tax return


Disadvantages of Buy-To-Let Mortgages

  • Increases your tax bill
  • You’ll have to pay Stamp Duty surcharge
  • You have to cover the cost for any damages and repairs on the property
  • You’ll may be stuck with costs for running the property while it’s empty with no rental income to help with this




What Do I Need To Consider Before Getting a Buy-To-Let Mortgage?

Prospective landlords should consider a number of things before getting a buy-to-let mortgage, particularly if this is their first time and they aren’t familiar with the demands and costs that come with renting out a property. Below is a list with some top things to consider before borrowing a buy-to-let:

  • Stamp duty – consider the stamp duty costs that could apply when purchasing this property to rent.
  • General mortgage fees – consider the standard fees that typically come when getting most types of mortgages, including legal fees and surveyor fees.
  • Renovations – consider whether the property needs any renovation work before starting to rent this out to tenants.
  • Is this investment commercially viable? – buying a property with the help of a mortgage is a major financial decision. Before taking out such a loan, it’s important to work out all the costs that will come with buying and renting out this property, and see whether your plans for the place are commercially viable, will this generate a profit for you?

In addition to these general considerations, it’s also important to research and fully understand the tax implications that will come from being a buy-to-let investor. These tax implications can affect both the rental income you collect and the money you make if or when you sell the property.