Buy to Let Mortgages

Buy to Let Mortgages

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Buy to Let Mortgages

Mortgages For Buy to Let

Steve Hendriks talks all about mortgages for Buy to Let. 

Listen Below!

PLEASE NOTE: This podcast and transcripts were correct at the point of recording in 2021. Some of the facts/figures quoted may have since changed, however when you speak with a Mortgage Adviser, they’ll be able to provide you with the most up to date facts/figures.

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

A Buy to Let mortgage is basically a mortgage for business purposes. With a residential mortgage you’re buying a house to live in yourself, but a Buy to Let mortgage is designed for a house that you’re buying to rent out to tenants.

Who can get a Buy to Let mortgage?

Pretty much anyone. All lenders’ criteria are different, so you can find a lender that will cater for almost any situation.

The main two criteria for a Buy to Let mortgage are whether you already own a property and whether you have been a landlord before. If you’re a First Time Buyer, that does restrict the amount of Buy to Let lenders – many of them expect you to own your own home. But there are lots of mitigating circumstances for why you may want to buy a rental property, so there are lenders that will consider First Time Buyers.

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

This is slightly different to a residential purchase. When you’re buying a property to live in yourself, the lender assesses the application based on your income. With Buy to Let the lender doesn’t focus on how much money you earn – they look at how much income the property can generate.

They’ll look at the rental value of the property as opposed to the sale value. As long as the rent is sufficient to cover the mortgage repayments and meet internal ‘stress tests’ the mortgage company will be happy to lend.

With regards to deposit, again, this differs to residential as traditionally it’s a minimum 25% deposit for Buy to Let. There are lenders that will consider 20% but no less than that.

What costs are we looking at with a Buy to Let?

The actual cost of the property is no different – that’s determined by the market and the estate agent that’s selling it. You will need to put down a sizable deposit of 25% and you will have a higher interest rate as well. Interest rates on Buy to Let mortgages are higher than residential because it’s a business venture. Buy to Let purchasers are usually already a homeowner with a bit of capital behind them, so interest rates are higher.

Will I pay stamp duty on a Buy to Let?

Yes, it’s the same as with a residential purchase – it doesn’t matter why you’re purchasing the property.

Speak To An Expert

Should I choose interest only or repayment on a Buy to Let mortgage?

It’s really important to make the right decision here. Whether you’re going to pursue the venture on a repayment basis or an interest-only basis completely depends on your reasons for doing Buy to Let. If you’re just looking to make a monthly income from that property, nothing else, then it often makes sense to do it on an interest-only basis.

That means you only pay the interest to the lender. You wouldn’t be reducing the capital. So if you borrowed £200,000 on a 30 year mortgage, at the end of that term you would still owe that lender £200,000. You would either have to pay the mortgage back out of your own funds or by selling the property.

With interest only, the monthly payment is a lot lower, so you would make more money. You’d receive a monthly rent and only pay, say, a quarter of that for your mortgage.

However, if the property is a long-term investment, where you want to own it at the end of the term – for your children or for you to live in, for example, you should opt for a repayment basis. That way you have the guarantee that the mortgage is going to be repaid at the end of the term. Your monthly payment would be a lot higher and you might not make much profit, but the idea is that the tenants living in the property are paying the mortgage for you.

So it’s all about your reasons for wanting to do Buy to Let – to make money now or whether you want to own the property in the future.

How many Buy to Let properties can I own?

There’s no limit to the number of properties, but lenders will have a cap on how many properties you can have with them. Some lenders only allow three or four, some allow up to 10. When you’ve got multiple properties you become seen as a ‘portfolio landlord’ where your borrowing has to be spread across different lenders. You can own as many properties as you want, as long as you’re spreading the borrowing.

I work closely with quite a few investors. The one with the largest portfolio has 52 houses throughout the UK. It’s not uncommon to have between five and 10 these days because it’s very easy to do. The first property is the hardest one to get because you have to find a 25% deposit. Once you’ve done that you can keep going, providing market conditions allow. Property prices keep rising, so a few years down the line you should have a lot of equity. Then what you can do is remortgage and release equity to go and buy another one.

That way it’s easy to expand your portfolio. A lot of investors will alternate – they’ll do one property on a repayment basis and the next on interest only. That means they’re spreading their risk. Half their portfolio is generating a monthly income and the other half is an investment. They will own a string of properties at the end of their mortgage terms that aren’t costing them anything now.

It’s probably the safest form of investment, because the only commodity that’s pretty much guaranteed to increase at the moment is property.

Any final words of advice on Buy to Let mortgages?

The only thing I would add, as with all mortgages, is to use a broker. As I’ve said before, it is a minefield out there. There’s so much to consider. A broker can help you look at things differently. We look at things from a holistic point of view and there may be a more efficient way of doing things that you hadn’t even considered. So pick up the phone, speak to me and I’ll guide you through it.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Why us?

Buy to Let Mortgages

Mortgages For Buy to Let

Steve Hendriks talks all about mortgages for Buy to Let. 

Listen Below!

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

A Buy to Let mortgage is basically a mortgage for business purposes. With a residential mortgage you’re buying a house to live in yourself, but a Buy to Let mortgage is designed for a house that you’re buying to rent out to tenants.

Who can get a Buy to Let mortgage?

Pretty much anyone. All lenders’ criteria are different, so you can find a lender that will cater for almost any situation.

The main two criteria for a Buy to Let mortgage are whether you already own a property and whether you have been a landlord before. If you’re a First Time Buyer, that does restrict the amount of Buy to Let lenders – many of them expect you to own your own home. But there are lots of mitigating circumstances for why you may want to buy a rental property, so there are lenders that will consider First Time Buyers.

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

This is slightly different to a residential purchase. When you’re buying a property to live in yourself, the lender assesses the application based on your income. With Buy to Let the lender doesn’t focus on how much money you earn – they look at how much income the property can generate.

They’ll look at the rental value of the property as opposed to the sale value. As long as the rent is sufficient to cover the mortgage repayments and meet internal ‘stress tests’ the mortgage company will be happy to lend.

With regards to deposit, again, this differs to residential as traditionally it’s a minimum 25% deposit for Buy to Let. There are lenders that will consider 20% but no less than that.

What costs are we looking at with a Buy to Let?

The actual cost of the property is no different – that’s determined by the market and the estate agent that’s selling it. You will need to put down a sizable deposit of 25% and you will have a higher interest rate as well. Interest rates on Buy to Let mortgages are higher than residential because it’s a business venture. Buy to Let purchasers are usually already a homeowner with a bit of capital behind them, so interest rates are higher.

Will I pay stamp duty on a Buy to Let?

Yes, it’s the same as with a residential purchase – it doesn’t matter why you’re purchasing the property.

Speak To An Expert

Should I choose interest only or repayment on a Buy to Let mortgage?

It’s really important to make the right decision here. Whether you’re going to pursue the venture on a repayment basis or an interest-only basis completely depends on your reasons for doing Buy to Let. If you’re just looking to make a monthly income from that property, nothing else, then it often makes sense to do it on an interest-only basis.

That means you only pay the interest to the lender. You wouldn’t be reducing the capital. So if you borrowed £200,000 on a 30 year mortgage, at the end of that term you would still owe that lender £200,000. You would either have to pay the mortgage back out of your own funds or by selling the property.

With interest only, the monthly payment is a lot lower, so you would make more money. You’d receive a monthly rent and only pay, say, a quarter of that for your mortgage.

However, if the property is a long-term investment, where you want to own it at the end of the term – for your children or for you to live in, for example, you should opt for a repayment basis. That way you have the guarantee that the mortgage is going to be repaid at the end of the term. Your monthly payment would be a lot higher and you might not make much profit, but the idea is that the tenants living in the property are paying the mortgage for you.

So it’s all about your reasons for wanting to do Buy to Let – to make money now or whether you want to own the property in the future.

How many Buy to Let properties can I own?

There’s no limit to the number of properties, but lenders will have a cap on how many properties you can have with them. Some lenders only allow three or four, some allow up to 10. When you’ve got multiple properties you become seen as a ‘portfolio landlord’ where your borrowing has to be spread across different lenders. You can own as many properties as you want, as long as you’re spreading the borrowing.

I work closely with quite a few investors. The one with the largest portfolio has 52 houses throughout the UK. It’s not uncommon to have between five and 10 these days because it’s very easy to do. The first property is the hardest one to get because you have to find a 25% deposit. Once you’ve done that you can keep going, providing market conditions allow. Property prices keep rising, so a few years down the line you should have a lot of equity. Then what you can do is remortgage and release equity to go and buy another one.

That way it’s easy to expand your portfolio. A lot of investors will alternate – they’ll do one property on a repayment basis and the next on interest only. That means they’re spreading their risk. Half their portfolio is generating a monthly income and the other half is an investment. They will own a string of properties at the end of their mortgage terms that aren’t costing them anything now.

It’s probably the safest form of investment, because the only commodity that’s pretty much guaranteed to increase at the moment is property.

Any final words of advice on Buy to Let mortgages?

The only thing I would add, as with all mortgages, is to use a broker. As I’ve said before, it is a minefield out there. There’s so much to consider. A broker can help you look at things differently. We look at things from a holistic point of view and there may be a more efficient way of doing things that you hadn’t even considered. So pick up the phone, speak to me and I’ll guide you through it.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Why us?