Buy-to-Let Mortgages

When it comes to investing in property, a common way of financing is to apply for a Buy-to-Let mortgage. This type of mortgage is slightly different to a standard residential mortgage and is sold specifically to those planning a property investment.

Although there’s several different types, a typical Buy-to-Let mortgage is offered on an interest-only basis. This means that your repayments only cover the interest, your overall loan will not go down and will need to be paid in full at the end of the term.

Buy-to-Let mortgages usually require a larger deposit and result in a higher rate of interest.

Buy-to-Let mortgages are not just made available to people that want to invest in property. There are other criteria that need to be filled before the application is successful:

The applicant needs to own their own home, whether they’ve bought outright or have an outstanding ‘regular’ mortgage.

The applicant should have a good credit record and not be stretched with other borrowings such as credit cards. Many lenders will also struggle to approve a buy-to-let mortgage for those who earn under £25,000 plus a year.

Finally, the person applying for the Buy-to-Let mortgage will need to be under a certain age. Lenders tend to only offer mortgages to those who will be under 75 at the end of the lending period. For example, a 30-year mortgage at the age of 45 would end on the last year of the upper-age limit.

Although Buy-to-Let mortgages are less available than regular mortgages, they are offered by most large banks and specialist lenders around the country. Always consider talking to a mortgage expert before taking out a Buy-to-Let mortgage as they can inform you of the difference between mortgage types and find the most suitable offering for you

Remember that if you use a price comparison website to find your Buy-to-Let mortgage, not all of the sites will give you the same results, so make sure you use more than one site before reaching a final decision.

Also, remember that there are often headline rates offered on a mortgage but these aren’t final – a number of other fees and charges can be involved.

Buy-to-Let (BTL) mortgages work like regular mortgages but have some key differences that set them apart. First and most importantly, fees tend to be much higher than a regular mortgage, with interest rates that are usually higher.

In the current market, interest rates are at some of the lowest they’ve ever been. The minimum deposit for a Buy-to-Let mortgage is usually 25% of the property’s value, although it varies between 20% and 40%.

Many BTL mortgages work on an interest-only basis – meaning you don’t have to pay monthly but at the end of the term you repay the original loan in full. Some mortgages can also be made available on a repayment basis.

The maximum amount you can borrow on a Buy-to-Let mortgage is decided primarily by the amount of rental income you’re expecting. It’s usually required to be around 25 – 30% higher than the mortgage payment.

If you’re looking to find out what rental income you can be expecting, consider doing the research. Speak to local lettings agents, check the local listings and identify past performance.

Alternatively, you can use our Investment Calculator.

In April 2017, the system of calculating tax on rental income for landlords was altered significantly. By April 2020, landlords were no longer able to deduct mortgage expenses from rental income and instead have a 20% tax credit on the net rental income.

This system was implemented in phases, with the deductible amount being decreased by 25% every year from 2017 to 2020.

Since the system changed, landlords have faced phased decreases in the percentage of mortgage payments that can be deducted from rental income and increases to the percentage of these mortgage repayments that qualify for a new 20% tax credit.