What is a Buy to Let (BTL) mortgage?
A Buy To Let (BTL) mortgage is aimed at people who are purchasing a property for investment purposes. Specifically, the property must not be lived in by the person buying the property or by their family and should generate a rental income from being let out.
What is the minimum deposit needed to purchase a BTL property?
The majority of BTL lenders require a minimum deposit of 25% although there is a small handful of lenders who will allow a deposit of 20%.
How is affordability worked out?
Affordability for BTL is different to affordability for a residential mortgage. The vast majority of lenders who offer BTL mortgages are looking at the rental income versus the mortgage payment to ensure that the mortgage and associated running costs of a BTL are adequately covered. They apply a stress rate to the mortgage payment although the level to which the rate is stressed can differ depending on whether or not you are a basic or higher/additional rate taxpayer. Stress rates are also different if purchasing the BTL via a limited company.
Does it matter if I don't own a main residence?
The majority of lenders who offer BTL products prefer you to be an owner-occupier, so would require you to own your own home before they would allow you to purchase a BTL property. However, we have access to lenders who will allow first-time buyers to purchase a BTL property (so don't need to own a main residence).
Does it matter if I am a First-Time Landlord?
Again, some lenders are ok with it if you are a first-time landlord whereas others are not. That's where our expertise comes in by making sure we find the right lender for your circumstances.
What's the difference between buying a BTL in personal names or in a company?
The main reason for buying property through a limited company is for the potential tax benefits. You should speak to a qualified accountant or tax specialist for further advice regarding this.
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If you plan on owning lots of BTL properties, there is no limit on the number of properties you can have if they are owned via a limited company, whereas portfolio landlords will typically have a maximum limit of 10 properties.
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Buying a property through a limited company can be more expensive due to higher lender fees as well as the fact that you will need to pay to submit annual accounts to HMRC.
What is a Special Purpose Vehicle (SPV)?
A Special Purpose Vehicle (SPV) is simply a type of limited company that is set up purely for the purpose of buying property. This can be done either by individuals or existing limited companies. Be careful when setting up a SPV to make sure that you have the right SIC codes - your accountant should be able to advise.
How am I taxed if I own a BTL property?
You will have to pay income tax on rental income. You will also have to pay capital gains tax as well as income tax when you dispose (sell) the property. For full details of any tax implications, you are best to speak to an accountant or tax adviser.
Can I rent out my current home and buy a new main residence?
Assuming it's affordable and you meet lender eligibility criteria, then yes you can. This is known as a Let to Buy mortgage. Normally, you release some of the equity that you have built up in your home as deposit for your new main residence. You convert your existing residential mortgage to a BTL mortgage and then take a new residential mortgage on the property you are purchasing.
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As this is quite a specialist product, we would strongly encourage you to let us take care of it for you.
Why should I use a mortgage broker like V Finances?
We have over a quarter of a century of experience in giving tailored advice specific to your circumstances. We can search the whole of the market to find the mortgage that best suits your needs.
We have established relationships with lenders and will check your eligibility and affordability against their criteria before placing your application.
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We will look after all of the process from start to finish, submit your documents to the mortgage lender and keep you updated every step of the way.
We are regulated and authorised by the Financial Conduct Authority, so you get the same protection as if you were going direct to your bank or building society but with the added bonus that we search for the best deal across the wider market.
A step-by-step guide to getting a mortgage
Click on each step for more information
Step 1: Discuss your requirements with us
Step 2: Gather documents and send to us
Step 3: Give consent for Decision in Principle
Step 5: Instruct solicitors for your mortgage
Step 7: Lender assesses your application
Step 9: Lender makes an offer
Step 11: Discuss protection needs
Step 4: Receive mortgage recommendation
Step 6: We submit your application to a lender
Step 8: Lender values the property
Step 10: Solicitor carries out legal work
Step 12: Mortgage completes
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY LOAN SECURED AGAINST IT.
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SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Useful Tools and Resources
Disclaimer
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.
Click on one of the buttons below to choose the relevant calculator
This calculator can be used to see regular monthly payments on either a capital repayment or interest only basis. When using the interest only option, the total payable does not include the original capital borrowed which would also need to be paid back at the end of the mortgage term.
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The calculator also assumes the mortgage rate used will apply for the term stated and cannot account for future changes to interest rates or your product.
Types of Mortgage
Fixed Rate Mortgages
The interest rate and monthly payment stay the same every month for the duration of your fixed rate period, which is typically for 2, 3, 5 or 10 years.
No matter what happens to the Bank of England Base Rate (up or down), your monthly payments will stay the same during your fixed rate period.
At the end of your fixed rate period, if you do nothing, you will move onto the lender's Standard Variable Rate (SVR).
Fixed rates are good if you want stability in payments without any surprises when it comes to budgeting.
Tracker Rate Mortgages
The interest rate is linked to the Bank of England Base Rate so payments can vary throughout the product term. A tracker rate may be suitable for you if you're happy to take a risk with your monthly payments or need to make large overpayments to your mortgage as some tracker rates will allow for unlimited overpayments without penalty.
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Tracker rates are good if you want to make large overpayments to your mortgage or if the Bank of England Base Rate decreases.
Offset Mortgages
With an offset mortgage, the amount of interest you pay is based on the mortgage balance minus any savings you hold in a linked savings account. So if you took out a £150,000 mortgage but had £50,000 in a linked savings account, you would only pay interest on £100,000.
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Offset mortgages are good if you need flexible access to cash for things such as phased home improvements or private school fees.
Payment Types
Capital Repayment
A capital repayment mortgage is one where each month you are paying off some of the amount you borrowed (capital) and some of the interest on the amount you borrowed. At the end of the mortgage term, you will own your property outright.
This option is suitable for people who do not like risk and want to know their mortgage is fully paid off at the end of the term.
Interest Only
An interest only mortgage is one where each month you are only paying the interest on the amount you borrowed. At the end of the mortgage term you will still owe the original sum that you borrowed.
This is a high risk option and is only suitable for those who have a suitable repayment strategy in place to repay the capital borrowed at the end of the mortgage term.
Lenders assess the suitability of the repayment strategy (and we do not advise on their suitability) but these often include: sale of the mortgaged property; sale of a second property; a portfolio of stocks and shares with an equivalent (or higher) value than the sum borrowed; savings equivalent to the amount borrowed.
Part and Part
A part and part mortgage is where some of your mortgage is on a capital repayment basis and some of your mortgage is on an interest only basis.
This is still a relatively high risk option and you will need a suitable repayment strategy in place to repay the capital borrowed on the interest only part at the end of the mortgage term.
Fees and Costs
Broker Fee
We don't charge a penny for our advice to anyone who is involved in the veterinary sector (just one of you needs to be if it's a joint application)..
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We also don't charge a penny for anyone who lives within a 5 mile radius of Wymondham Market Cross (just one of you needs to be within catchment if it's a joint application).
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For everyone else, we charge up to £399 on full application to the mortgage lender. This is non-refundable.
Mortgage Product Fee
Some mortgage products will have a 'booking fee' or an 'arrangement fee' which is essentially a fee for securing a particular interest rate. This can either be paid upfront or added to the mortgage (subject to affordability). If you add this fee to the mortgage then you will pay interest on the fee for the duration of the mortgage term.
Mortgage Valuation Fee
Some lenders will charge a fee to value the property you are buying or remortgaging. This varies from lender to lender but typically ranges from £0-£500. This is a basic valuation for mortgage purposes and is for the lender's benefit. It isn't a survey that will comment on the condition of the property.
Survey Fee
When buying a property, it is advisable to have a survey carried out on it to check on its condition and to pick up on any potential issues. This is separate to the mortgage valuation fee and can be arranged independently by you. The Tier 2 survey is the mid-level report (previously Homebuyer's Report) or you can opt for a Tier 3 survey (previously Full Building Survey).
Legal Fees
Whenever you buy or remortgage a property, then solicitors need to get involved. When buying a property, the solicitor will need to carry out searches on the property and make enquiries with the vendor's solicitor, as well as register your property with the Land Registry. With a remortgage, it's a lot more straightforward, so the costs are lower.
Stamp Duty Land Tax
You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland. The tax is different if the property or land is in Scotland (Land and Buildings Transaction Tax) or Wales (Land Transaction Tax). Your solicitor will confirm how much is payable.
Moving Costs
If you're moving home, it stands to reason that you will have furniture and other contents that you want to take with you. Some people may be able to do this themselves (possibly with the help of friends/family). Others will need to hire a professional firm to do this for them.
Buildings Insurance
Buildings insurance is a condition of having a mortgage. The cost of this will depend on the type of property you're buying, where it's located, local crime rates, the type of locks on the windows and doors, amongst other factors. We would recommend having buildings insurance in place from exchange of contracts.
Protection
We would strongly recommend having insurance (protection) in place if you are unable to work due to accident, sickness or injury. We would also recommend having insurance in place to clear the mortgage in the event of you contracting a critical illness or passing away. You should consider setting aside a protection budget when buying a property.