What is a Buy-to-Let Mortgage?

A Buy to Let mortgage is usually an investment opportunity for landlords who already own one property, but buy another property specifically to rent out.

Buy to Let mortgages can also be applied to existing mortgages in cases where the landlord rents out their home and moves out to live elsewhere, if a Consent to Let from their lender is not applicable.

How do Buy to Let mortgages work?

  • Buy to Let mortgages tend to come with higher interest rates and a minimum deposit of around 25% of the property’s value although a number of lenders will accept a lower, 20% deposit.
  • Buy to Let mortgages are not regulated by the FCA (Financial Conduct Authority), unless you are getting a mortgage on a property you are living in, or that you are letting to a close family member.
  • In most other ways Buy to Let mortgages work like regular mortgages, with fixed and variable repayment terms, however many Buy to Let mortgages are interest-only, meaning no monthly interest is paid on the lump sum borrowed but that at the end of the mortgage term the full loan has to be repaid.

How to get a Buy to Let mortgage

Review your affordability
To get a Buy to Let mortgage you usually need a good track record showing that you are able to cope with your existing credit agreements, credit cards and repayments. Lenders may also want to review the rental income from the property when assessing your application, to ensure that this is sufficient to support the mortgage repayments. It may be a good idea to get advice from a mortgage broker on these matters as part of your application process.

Check your credit history
Your lender will usually want to check your credit report, so making sure there are no mistakes in this could help you keep the process on track.

Compare mortgage products
It’s always advisable to search for and compare the terms of mortgages offered by different lenders, in order to get a good view if how well these fit your needs.

Comparing mortgage deals won't leave a footprint on your credit report visible to lenders, so it won’t affect your credit score.

What to do once you’ve got a Buy to Let mortgage

Plan for the future
Consider planning ahead and put savings aside for times when you may not have tenants and you have a ‘void’ with no rental income, or for when you are obliged to pay for repairs and maintenance.

Sort out your tax payments
You will have to declare profits gained from rental income on Buy to Let mortgages on your annual tax form, though you are usually able to deduct the interest rate payments as expenses. For more information, contact HMRC and/or a qualified tax advisor.

Work out your exit strategy
If your Buy to Let mortgage is interest-only it is best not to rely on selling the property to pay off the mortgage at the end of its term if house prices fall.