What You Need to Know About Buy to Let

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Home 5 Guides 5 What You Need to Know About Buy to Let

What You Need to Know About Buy to Let

What’s a Buy to Let Mortgage?

Pretty much what it says on the tin. You’ll probably need to use a buy to let mortgage if you plan to buy a property to rent out. Likewise, if you’re planning to rent out your existing home, you’ll typically need to swap to a buy to let mortgage.

In some cases, for example if you’ve moved jobs, or need to temporarily move away, you may be able to get ‘consent to let’ under your existing residential mortgage arrangement.

Consent to Let

In some cases, depending on your circumstances, your lender may allow you to rent out your property under your residential mortgage. Doing this would normally mean you’d be breaching the residential mortgage contract.

If you can’t get consent to let, you’ll have to remortgage to a buy to let product.

What’s Different About Buy to Let Mortgages?

Unlike residential mortgages, buy to let mortgages are considered more risky from the lenders perspective and generally require you to:

  • put down a bigger deposit – typically at least 25% – though some lenders allow you to get away with 20% (and in rare cases 15%).
  • pay a slightly higher interest rate
  • pay higher fees to the lender at outset
  • in most cases take the loan out on an interest only basis for it to be affordable
  • forfeit the financial protection you would normally get as a consumer under a regular residential mortgage

So, How Much can I Borrow?

Typically the amount you can borrow will be driven by the amount of rental income your new property will produce.

You will usually also need to meet minimum earned income and credit scoring requirements.

You generally need a monthly rental income of at least 1.25x – 1.45x your monthly mortgage repayments assuming an interest rate of about 5.5%.

Don’t forget to factor in tax, landlord insurance, rent insurance and letting agent fees when figuring out what’s affordable.

As part of our advice process at Exley Financial Planning, we’ll help you figure out whether your proposed Buy to Let purchase is affordable.

Is Buy to Let Worthwhile?

We’ve got lots of clients who stand by buy to lets as one of their preferred investment strategies – but they’re not for everyone. You’ll need to commit a lot of time and money to make it work.

There have been some tax changes in recent years, which have made buy to lets slightly less attractive to the inexperienced landlord. In particular, if you buy a second home, you’ll be liable to pay the higher rate of land transaction tax / stamp duty.

Some tax reliefs have also changed. In particular, in relation to mortgage interest payments and wear and tear.

Get in touch for more information about Buy to Let tax changes.

How can I Make Money out of a Buy to Let?

There are two main ways you could make money from your buy to let property:

  • Rental profits – which could increase as rent rates rise
  • Value of your property could increase over time

Of course, you’ll have to have a think about which of these is more important to you, because this will impact the location where you choose to buy. For example, if you’re looking to make money by selling the property in the future or releasing equity, you may avoid looking in places that have recently seen a sharp rise in house prices (what goes up might come back down).

Can I get as many Buy to Let mortgages as I want?

This will depend on the lender.

Many high street lenders will limit you to 3 or 4 buy to lets. Extra scrutiny is required for ‘portfolio landlords’ – defined as those having 4 or more Buy to Let properties.

However, other lenders will allow you to own upwards of 15 buy to lets in your own name.

Should I Set up a Limited Company for my Buy to Let’s?

You should always take advice from an accountant here.

As a general rule of thumb, the more properties you have, the more likely it is that owning them under a limited company will be more efficient. For example, if you only had one property, it’s likely the additional set up and running costs of a LTD company would outweigh the tax benefits.

One of the main advantages of running a property portfolio under a limited company is that you can still deduct mortgage interest payments from your gross profits for tax purposes.

It’s important to note that in general, interest rates are higher for mortgages held under a limited company status.

Interest only buy to let mortgages

An interest only mortgage means you don’t have to repay any of the loan until the end of its term. Instead, you just make interest payments every month.

For example, if you borrowed £100,000 and your annual interest rate was 2%, your annual interest payments would be £2000 (or £166.67 per month).

On the other hand, most residential mortgages require that you pay both interest and some of the loan off each month – making monthly payments more expensive.

You’ll need a plan in place to pay off the loan at the end of your mortgage. 

This could be:

  • selling the property
  • investments
  • an endowment
  • taking out another mortgage

What evidence do I need to provide to get a buy to let mortgage?

First of all, you’ll need to meet a given lenders criteria. For example, you might need to have a clean credit score, be over the age of 21 and already own your own residential property. Remember, different lenders have different criteria.

Once it’s been established that you meet the criteria, the lender will often ask for the following:

  • Proof of income (P60s, payslips covering 3 months, tax returns)
  • Proof of deposit and it’s source
  • Proof of ID (passport / driving licence)
  • Proof of your address (bank statements / utility bills etc)

Your property may be repossessed if you don’t keep up repayments on your mortgage, and some buy to let mortgages are not regulated by the Financial Conduct Authority.

What people are saying:

sam tapsellsam tapsell
17:17 11 Mar 24
Chris has been super helpful, always provided honest advice tailored to my situations. Highly recommend!
Ann-Marie JonesAnn-Marie Jones
17:47 18 Jan 24
Highly recommend Chris at Exley Financial Planning. He was really helpful and has walked through each stage carefully with patience and helped secure us a better rate on our mortgage.
Jasmine ScottJasmine Scott
20:21 18 Jul 23
I’ve had the pleasure of working with Chris now for over 6 years. He’s arranged my last three mortgages for me successfully. I’ve always found Chris to be highly efficient, and clear and open in all of his communications. He’s also taken the time to explain my options and be at the end of a phone. I trust him implicitly and would recommend him to anyone looking for sound financial advice and support regarding money matters.
Mike WilliamsMike Williams
16:37 18 May 23
Couldn't recommend a better financial planning advisor.Chris's help, advice and knowledge base was second to none.
Deborah NDeborah N
11:41 18 May 23
Chris was outstanding. His service was attentive, comprehensive and he displayed an impressive knowledge of his field. He was always easy to contact, friendly and returned calls and messages promptly. His help was invaluable. We are incredibly grateful for all his assistance and wouldn't hesitate to recommend him to others.
Jay ProbertJay Probert
12:02 07 Jul 22
Chris was referred to my wife an i by a neighbour. Despite conducting all communication online (emails/MS Teams calls) at all times Chris has remained personable and responsive. My wife and i are far from experts in this field but Chris' calming approach to the process has been most reassuring and would strongly recommend his services to others. Thanks Chris.
Alexia BowlerAlexia Bowler
08:27 25 Apr 22
We recently used Exley Financial Planning (Chris) for our mortgage and they were so professional, efficient and listened to our every need. We got some very good advice and felt confident that they had our interests at heart. I would use Exley Financial Planning again for anything finance related, and feel relieved we've now got someone who takes us through documents and processes (most of which are fairly confusing!), step-by-step. Thanks Chris!
bethan boddybethan boddy
11:55 08 Mar 22
Fantastic service from Chris.Chris helped me with the process of getting my mortgage from start to finish. As a first time buyer, I was clueless. Having Chris help me made the process a lot easier and he was able to explain information to me that I was unsure off.I highly recommend this company to anyone, especially first time buyers.
Ellen MorganEllen Morgan
08:26 31 Mar 21
I can’t thank Chris enough for all his help throughout my purchase. It hasn’t been an easy process buying my first home during a pandemic, but Chris made securing a mortgage a breeze! Chris is very knowledgable and was honest with me from the outset about what was affordable for me and the mortgages available. It has been a long process for me, but Chris is always available on the other end of the phone to answer any questions I had and kept me updated every step of the way. Brilliant service, I would highly recommend! Thank you Chris!
Rod DCRod DC
19:42 19 Aug 19
Chris has been absolutely fantastic in helping us secure our mortgage offer.Our own situation was a bit more complex due to work and contracts but Chris has worked extremely hard to find us a mortgage that suits us.The quality of service has been top notch from the first meeting. Communication has been excellent and we have been constantly updated on the situation and progress of all processes.It has been so worth employing the services of Exley and I cannot recommenced the service more.
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