Buy to Let

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Louise Mccaffery answers your questions on Buy to Let mortgages.

What is a Buy to Let mortgage and how do they work?

A Buy to Let mortgage is when a property is bought for the purpose of renting out, rather than lived in by the buyer. A property with a residential mortgage cannot be let out without consent from the Lender.

A personal Buy to Let is in your sole name, and a Limited Company Buy to Let is set up to be rented out and owned under a company, not someone’s personal name. Some landlords prefer to set up a Limited Company Buy to Let, as they may have tax benefits. This is especially true for those with existing portfolios of four or more properties, as it may increase mortgage availability, given that corporation tax is charged at a lower rate than income tax, meaning lenders can be a little bit more flexible with their criteria.

Who can get a Buy to Let mortgage?

Most people can apply for a Buy to Let mortgage, as long as you’re an adult with a deposit available. You don’t need to own your own home, some First Time Buyers can get a Buy to Let mortgage. Some lenders insist on you owning your own residential home before you take on a Buy to Let property, however, a broker like ourselves would be able to let you know which lenders would be more appropriate for a First Time Buyer or landlord.

How much can you borrow on a Buy to Let mortgage and what deposit do you need?

Unlike a residential mortgage, where the amount you can borrow is based on your salary, a Buy to Let is assessed on the rental income the property is likely to generate. One of the first things to do is speak to a local estate agent about what kind of rental income you would expect to achieve on your chosen property.

The deposit can be anywhere between 15 to 25% depending on the lenders, although most lenders ask for the 25% on a Buy to Let property. There are a few select lenders who will accept a slightly smaller deposit, and that’s something we are going to be able to help you with, as we can look across the marketplace to see what’s available.

How much does a Buy to Let property cost?

You normally find that Buy to Let properties are a little bit less expensive than your main home, because it’s normally for an investment, however, it really does depend on where you’re buying. If you were buying a Buy to Let property in Glasgow, that’s going to be a lot cheaper than London, for example.

Costs would involve a solicitor, your deposit, and a valuation on the property, however, some lenders would do that free of charge. That’s something we will confirm with you when you’re starting to look at your Buy to Let.

Is it illegal to rent out a house without a Buy to Let mortgage?

If you have a residential mortgage and you want to rent out your property, you either need to apply for a Buy to Let mortgage or a Consent to Let through your current Lender. I wouldn’t say it’s illegal, but it’s considered mortgage fraud if you were to let out your residential home without authority from your current lender or a Buy to Let mortgage on that property.

Speak To An Expert

Here at The Mortgage Broker Scotland our mortgage advisers work in specialist teams, each dealing with specific mortgage types to ensure they can offer detailed and relevant advice to every client.

Our expertise in Scotland allows us to advise you on the most suitable mortgage for you in your area, meaning we deliver a market-leading service closer to your home.

Is it illegal to live in your own Buy to Let property?

While it’s not illegal to move into property that you own with a Buy to Let mortgage, it’s usually a condition of the mortgage that you don’t. You’re always best to check with your broker or lender to find out their stance.

Interest-only versus Repayment on a Buy to Let mortgage?

It really depends on what your plans are for the property in the future. Many people prefer to have their Buy to Let properties on an Interest-only basis because it gives you a much lower monthly payment, and therefore, a higher monthly profit from your rental income. This means that you’d need to pay off the mortgage at the end of the term by either selling the property or if you plan to keep your Buy to Let property, maybe a pension fund for example.

You might also want to consider a full Repayment Mortgage, because that means your mortgage balance is paid off by the time you potentially retire, so you’re not paying a mortgage out on that.

How many Buy to Let properties can I own?

There’s no limit on the number of Buy to Let properties you can own, although the more you own, it may get a little bit more tricky to do your applications, but that’s what we are there for, as brokers.

Different lenders may have their own rules about the maximum number of loans they can advance to an individual, but there are many portfolio Mortgage Lenders on the market that can help you grow your investment.

If you’ve got four or more Buy to Let mortgages, you would be classed as a portfolio landlord, so the lender would potentially do further checks, such as stress testing, to make sure that you’re financially stable to own a number of different properties.

How can a mortgage broker like The Mortgage Broker Scotland help if you’re looking into Buy to Let mortgages?

When it comes to Buy to Lets, it can be a bit more tricky to work out which lender is the most suitable for your circumstances, so it is always best to speak to a broker. There are so many different routes that you can take, as each lender is slightly different with regards to the maximum amount of properties, or whether they prefer landlords to use a limited company.

A broker like ourselves will be able to put you in touch with the correct lender or someone who’s going to be able to lend what you’re looking for.

Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 2%, but a typical fee of £495 is payable on offer.