A buy-to-let (BTL) mortgage is a mortgage specifically for people who intend to buy a property with the purpose of renting it for profit. Unless you’ve paid off your mortgage, it’s usually against your lender’s rules to rent out the property under a standard mortgage.
How do buy-to-let mortgages work?
Buy-to-let mortgages are fairly similar to standard mortgages, but there are some key differences:
- Most buy-to-let mortgages are interest only, which means you’re paying back the interest rather than the capital. This means the amount you owe won’t decrease, so you’ll have to find a way to pay back the capital at the end of the mortgage term.
- The affordability of the mortgage will be based on the potential rental yield of the property, as the rental income has to cover the mortgage payments.
- The majority of buy-to-let mortgages are not covered by the Financial Conduct Authority (FCA).
- Interest rates and fees are typically higher than residential mortgages.
- The typical LTV for a buy to let mortgage is around 75-80%, which means most lenders will expect you to put down 20-25% of the property's value as a deposit.
Can I get a buy-to-let mortgage?
There is no specific eligibility check box for buy-to-let mortgages as all lenders are different, but most lenders are looking for:
- People aged over 21 and younger than 75-80.
- Whether you have experience being a landlord.
- Most lenders will only offer a buy-to-let mortgage to people who already have a residential mortgage and have been a homeowner for at least six months.
- Mortgage providers will generally only approve a loan if the rental income of your property is higher than the mortgage payments. This varies, but 125-145% is pretty common. You will need to provide a rental income projection from an Association of Residential Lettings Agents (ARLA) regulated agent.
- Some lenders will request bank statements as proof of income. Lenders may be looking for proof of at least £25,000 per year.
- Poor credit history will limit the rates and conditions you will qualify for, although how much will depend on your age and reasons for poor credit.
Is a buy-to-let mortgage a realistic option for me?
Before reaching out to lenders, get an idea of what kind of rent you can charge by looking up listings and contacting agents in your area. You will also need to get the property surveyed to get a homebuyer report. Also consider the potential for unexpected maintenance costs and think about whether you can afford to fork out for unforeseen repairs.
Can I get a buy-to-let mortgage as a public sector worker?
Being a landlord can give you a source of (kind of) passive income, which can be incredibly helpful. If you’re interested in getting a buy-to-let mortgage and you’re not sure how to navigate the process as a public sector worker, we’re here to help. Speak to our specialist team for advice.
