A Buy to let mortgage is a mortgage taken on a property that you let out to tenants to live in, rather than living in the property yourself.

There are different types of buy to let mortgage and we will come on to summarise these.

A property could be purchased to let out, inherited or you could let your current property.

 

Rental income

The key difference for a buy to let property is most lenders calculate the mortgage based on the rental income.

This will be based on the rental income currently being received if you already own the property.  When purchasing a property you can use an estimate from a lettings agent. The lender will then carry out a survey on the property and as well as confirming the value of the property, they will also give a rental income that they believe is achievable for the property.

Top slicing mortgages can be used when the rental income. Your income and outgoings are then taken in to account to increase the amount they can offer on the mortgage.

Most buy to let properties will need a deposit of 25% of the value of the property. This also applies with 25% equity required to remortgage your property on to a buy to let mortgage.

You can own as many buy to let properties as you would like to. However some lenders have restrictions on how many mortgages or the total mortgage debt that can be held within their banking group.

 

Portfolio landlord

Once you own 4 or more buy to let properties, you are classed as a Portfolio landlord. The criteria and affordability does then change with the majority of lenders. When you first speak to your advisor, they will ask about any other properties you own and take the details of these properties.

 

Let to Buy

A let to buy is where you let out your current property and purchase a new residential property. You could look at taking money out of your current property if this is viable as well.

If you are looking to let out the property which you currently live in, you will need to get an estimate for the rental income the property will achieve. It is worth speaking to a mortgage advisor to check all your options as they can calculate which option would work out financially better for you.

 

House in multiple occupation (HMO)

A house in multiple occupation, or a house of multiple occupancy, refers to residential property where individual rooms are let and the common areas are shared. The rooms are let to people from more than one household.

This is common for students and professionals. It gives the flexibility of being able to rent a room rather than paying to rent a whole property. The mortgages on these properties require specialist lenders and products. It is important to let your mortgage advisor know if your property is let out in this way.

 

Limited company buy to lets

The majority of buy to let properties are purchased in your name the same way you purchase your residential property. However, some people chose to purchase a property through a Ltd company. The Ltd company will need to be set up with the purpose of purchasing buy to let properties and all directors on the company will also need to be named on the mortgage. The main reason why people purchase properties through a ltd company is due to the tax differences on the income. If you are considering this option, you would benefit from speaking to a tax advisor. They will check that it will benefit you as you will pay higher interest rates and fees for the mortgage.

 

The costs involved with purchasing a buy to let property:

  • Deposit – normally 25% of the property value/purchase price as a minimum.
  • Valuation fees – the lender may charge a fee to check the property you are buying. They will check the value and rental income for the property.
  • Letting agent fees – from initial advertising and finding a tenant to a monthly management fee if they will be looking after the property for you.
  • Gas and Electricity certificates to show the property is safe for the tenants.
  • HMO licence fees if applicable for your property – the local council will be able to confirm if your property requires a HMO licence
  • Solicitor costs – this will also include the stamp duty payable for the property. The stamp duty will be at a higher rate if you already own a property. Here is a link to our calculator to estimate your costs: Mortgage calculators | Willow Brook Mortgages .We would advise getting a quote from a solicitor to clarify these costs.

Not all Buy To Let mortgages are regulated by the Financial Conduct Authority.