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Our MD Daniel Condren talks about Buy-to-Let mortgages. Listen below
What exactly is a Buy to Let and how do they work?
A Buy to Let mortgage is typically needed for you to buy a property and let it out to earn a profit. You’re basically using it as an investment property, and becoming a landlord.
What is the difference between a buy to Let mortgage and a Residential mortgage?
A Buy to Let is commonly used to purchase a property to let it out, and a residential mortgage is when you buy a property to live there yourself. For most customers, their first property is residential, especially in the UK, but some customers actually want to invest and buy second and third properties, to build a portfolio.
How is an individual Buy to Let different from a Limited Company Buy to Let?
The main difference is that you get different tax allowances when taking out a Buy to Let mortgage through a Limited Company, rather than in your personal name. There are advantages to both options, as well as additional costs to consider, and a broker would be able to help you in understanding which option is best. It very much depends on the customer and their current situation.
Who can get a Buy to Let mortgage?
Broadly speaking, if you’ve got the money for the deposit, then yes, most people can. But the normal rules do apply, so if you’ve got adverse credit you might find it more difficult.
Again, it depends on the circumstances and what your plans are for the property. Speaking to a broker is a good idea, to find out whether it’s an option for you.The interest rates are very attractive, so if you’re going to invest in properties, now is a good time.
How much can you borrow on a Buy to Let mortgage and what sort of deposit do you need?
The deposit levels are a little bit higher than for a residential mortgage. A minimum of 25% deposit is required, but the greater the deposit the better.
How much you can borrow depends on the rental expectation of the property. The lender will need to know what the expected rental from the property will be, you need to understand the rentals for your desired location. Rental yields tend to be better in the north, as property prices are lower than the south of the country, but check with your broker how much you can borrow.
Is there anything else to consider when it comes to Buy to Let mortgage criteria?
Not for anybody that’s got up to four properties. The industry is changing around what is a professional Landlord and what is a portfolio Landlord. If you’ve got up to four properties, standard mortgage criteria apply. There are lenders, however, that will want to look at your whole portfolio to check if your level of borrowing is too high.
The broker would understand what’s the cheapest rate, so speak to an expert that deals with portfolio property management and understands the rules around having a big portfolio.
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How much does a Buy to Let property cost?
In terms of fees, you will have to pay the broker fee if there is one, for their advice. An advantage of being a portfolio landlord is that the broker might waive these fees due to the repeat business. A good broker should save you interest and make your borrowing as flexible as possible.
The lender fees are typically higher on a Buy to Let than on a residential mortgage. You will also need to consider the survey fees, arrangement fees, any other associated costs, but the largest cost is the deposit. Does the customer have enough of their own interest, their own deposit to put down onto that property.
Is it illegal to rent out a house without a Buy to Let mortgage?
It’s certainly not illegal, but probably frowned upon, and you should inform the parties involved. Make Sure you’ve got permission from the lender, but typically it should be on a Buy to Let mortgage. As long as the lender is informed, however, and you’re doing everything legitimately, you’ll be fine.
Is it illegal to live in your Buy to Let property?
Lenders don’t want you to do this, and I’m not advocating this at all but you’re breaking the lender’s rules and not the law. If a life changing event occurred and you gave the lender notice, they may give you a certain amount of time to change the mortgage type, but for a long-term plan, you certainly wouldn’t do that.
Interest-only versus Repayment on a Buy to Let mortgage
It all depends on the customer’s strategy, so when you speak with a broker they will help you to understand the cheapest form of doing it and what’s right for you. If you don’t need the monthly income, then you might want to consider repayment but understanding the difference and the advantages as a customer is very important.
Do I need a solicitor for a Buy to Let?
You definitely need a solicitor for any property purchase, as they will need to deal with the legal part of the process. You still need a conveyancer, as they are a specialist in property law so they’re going to protect you from a legal standpoint.
How many Buy to Let properties can I own?
You can own as many as you possibly can. You’ve got to look at the tax implications of having a large estate, but there’s really no limit to how many properties you can have. You just need to bear in mind the level of risk involved with multiple property ownership, surrounding tenant reliability and the costs of property management for a large portfolio.
If you’re looking to invest in property, pick up the phone and check in with us here at One Mortgage. We can have a Zoom call to give an impartial review of the money you’ve got to invest. We help you to source the properties that are right for you.
Speaking to somebody that’s experienced like ourselves can help you to maximise your investments and help you understand the pitfalls and risks involved. A good broker will give you all the advice you need, and we certainly strive to give that level of service.
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