Buy to Let Mortgages Guides & Advice

A buy to let mortgage is designed for a property that will normally be rented to tenants rather than occupied as your main home. It is assessed differently from a residential mortgage, with expected rental income playing an important role. Deposit requirements are often higher and rates and fees can differ. Buy to let mortgages are generally not regulated by the FCA unless the arrangement is classed as consumer buy to let.

Many buy to let lenders require a larger deposit than for a residential mortgage, but the exact minimum varies by lender, property, applicant and product. A lower loan-to-value can improve product choice and may help the rental affordability assessment. You should also budget for legal fees, valuation, refurbishment, tax, letting costs and a reserve for repairs or periods without rent.

Lenders usually compare the expected monthly rent with a stressed mortgage interest payment using an interest coverage ratio. The required ratio and stress rate vary according to lender, product, tax status and whether the applicant is a higher-rate taxpayer or limited company. Some lenders also consider personal income. A strong rental figure does not guarantee acceptance because the property and applicant must meet all other criteria.

Some lenders accept first-time landlords, while others require existing landlord or homeowner experience. Criteria may be more restrictive for applicants who do not own their own home, have limited income or are also first-time buyers. The property type and expected tenancy also matter. An adviser can identify lenders whose criteria fit the proposed investment, although acceptance remains subject to underwriting.

The appropriate ownership structure depends on tax, financing, administration, future plans and personal circumstances. Limited company buy to let mortgages are available, but rates, fees, guarantees and lender criteria can differ from personal borrowing. Moving property into a company later may trigger tax and legal costs. Mortgage advice should be combined with independent tax and legal advice before deciding.

Some lenders offer mortgages for houses in multiple occupation and multi-unit blocks, but these are specialist property types with additional criteria. The lender may consider experience, licensing, valuation method, tenancy arrangements and local authority requirements. Not every standard buy to let lender accepts them. Obtain confirmation that the property and intended use meet both lender and legal requirements.

Equity release through a buy to let remortgage may be possible, subject to valuation, rental coverage, loan-to-value, affordability and the lender's acceptable purposes. Raising capital increases the secured debt and may reduce rental profitability. Early repayment charges and tax implications should be considered. The property must continue to meet the lender's requirements after the additional borrowing.

Rental income is not guaranteed and may be interrupted by void periods, arrears or repairs. Interest rates, regulation, taxation, insurance and maintenance costs can affect returns, and property values can fall. Landlords also have legal duties concerning safety, deposits, licensing and tenant treatment. Keep a contingency fund and obtain appropriate mortgage, legal, tax and insurance advice before proceeding.