What is a Buy To Let Mortgage?

Posted by David Reed

Buy to let (BTL) mortgages are for landlords who buy property to rent it out. Although they are similar to standard residential mortgages, rates and fees are typically higher for BTL mortgages, and usually the maximum you can borrow is 75% loan-to-value.

Who can get a buy to let mortgage?

Unlike residential mortgages which are calculated on the basis of your salary, with buy to let mortgages, the mortgage lender applies a rent to interest (RTI) cover calculation, meaning the borrower must show that the rental income from the tenant will cover the interest on the mortgage. RTI cover amounts vary between lenders, however the rental income must usually be between 125% and 130% of the monthly mortgage repayment.

Some lenders also require a minimum yearly income of £25k in addition to the income made from rent.

You will also have to meet the lender’s age criteria. Lenders have upper age limits, usually 75 years old. This is the oldest you can be when the mortgage ends, not when it starts. For example, if you’re 50 when you take out a 25-year mortgage it will finish when you’re 75.

Differences between BTL and regular mortgages

As we have already mentioned, interest rates and fees tend to be higher with buy to let mortgages. Additionally, the minimum deposit for a buy to let mortgage is usually 25% of the property’s value.

Some other key differences are:

  • Most BTL mortgages are interest-only. This means you don’t pay anything each month, but at the end of the mortgage term you repay the capital in full.
  • Unlike regular mortgages, buy to let mortgages are not regulated by the FCA (Financial Conduct Authority).

However, if you’re taking out a BTL mortgage from a lender that is FCA authorised, they are expected to treat you fairly.

How much can you borrow?

The amount you can borrow depends on how much how much you expect to generate in rental income.

Typically, lenders stipulate that the rental income is 25–30% higher than your mortgage payment.

Where to get a BTL mortgage

Many high street banks and building societies offer buy to let mortgages. However, many buy to let investors choose to find their mortgages through brokers who can offer specialist advice and may have access to a broader variety of buy to let mortgage deals. It’s up to you to decide whether you need this extra help.

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