Buy To Let Mortgages

The fundamental difference between buy to let mortgages and standard owner-occupier mortgages is that the lender will take into account the income potential of the property – i.e. what level of rent you can expect to receive from it. Some lenders may also look at your personal income too but if you are relying on your income to boost your acceptable borrowing level then be aware that any mortgage you have on your own home will also have to be taken into account.

Lenders will generally want prospective rental income to be at least equal to 125% of monthly interest payments so, for example, if the mortgage interest payments were £500 a month your rental income would need to be £625. Lenders are also likely to want the potential rental income to be confirmed by an independent source. This could entail providing a letter from a letting agency verifying the rent they would expect the property to achieve. The extra 25% buffer is there to protect landlords from any unexpected expenses or periods when the property may be vacant in between tenants. However the criteria do vary between lenders.

Buy to let mortgages: Rates and Fees

Buy to let mortgages will usually have higher arrangement fees than a standard mortgage and they also tend to be subject to higher interest rates, although ultimately these will depend on the size of your deposit. Since the credit crunch investors have typically been expected to put down a deposit of around 25% although we are now seeing the return of some 20% down deals. As with standard mortgages though, the best deals are being reserved for borrowers with deposits of 40% or more.

Lenders will generally lend up to £1m per property and you can have multiple buy to let properties but probably only if you are an experienced landlord.

Buy to let mortgage options

There are a wide selection of options for buy to let investors, including fixed, discount and tracker mortgages. Most buy to let mortgages are offered as interest only. This keeps the mortgage payments lower each month and is also tax efficient as interest costs on your mortgage are tax deductible.