All you need to know about buy-to-let

All you need to know about buy-to-let

12th Jul, 2019

Buy-to-let (BTL) mortgages are for landlords who want to purchase a property to rent out. 

The rules surrounding this type of contract are similar to those of normal mortgages, but there are some key difference which you need to be aware of. 

Here, we explain how they work, how to obtain one, and what mistakes to avoid…

Who?

You can get a BTL deal if you:

  • Are investing in houses or flats
  • Already own a property – whether outright or you still have outstanding payments 
  • Have a good credit score
  • Earn £25,000 + per year – if your annual income is below this, you may find it difficult to get a mortgage approved
  • Are below the age of 70 – some lenders have upper age limits.

How?

A commonly asked question, is how do they work? The answer is that they are much like ordinary agreements, but with these key differences:

  • Fees tend to be much higher 
  • Interest rates are larger
  • The minimum deposit for a home is usually 25% of the total value 
  • Majority of the deals are interest-only – this means you don’t pay anything each month, but at the end of the term, you pay the original loan amount in full
  • Most of them aren’t regulated by the Financial Conduct Authority (FCA) – unless you are renting to a close family member. 

Another frequently asked ‘how’ query is based around the sum you are able to borrow. This is entirely linked with how much rental income you expect to receive. Lenders typically require this to be higher than 25-30% of your repayments. 

Where?

You can get a BTL deal from most of the mainstream banks, but there are a few which specialise in this type of contract. It’s a good idea to speak with a broker before you agree to anything, as they are well suited to help you choose the best package for your circumstances. 

If you decide to go it alone and use comparison sites, ensure you use more than one. They won’t all give you the same results, so make sure you don’t leave any stone unturned – and risk missing out on the perfect deal for you! And look below the surface, as there are often additional charges and fees that won’t be evident from the outset. 

Hopefully you now know a little more about BTLs, but an extra tip from us is to plan for potential time when there may be no rent coming in. It could take you a while to source a tenant, as these things don’t always happen instantly – so make sure you’re prepared for this. You’ll therefore need a financial ‘cushion’ to support you, and ensure you meet any repayments on time. 

If you’re looking out for a property to buy and rent out, or similarly wanting to let a home, head over to our site and check out what’s currently on the market. 

View all posts by Gwen Kaye


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