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In recent times, the buy to let industry has been going through some pretty major changes. It’s not just a case of rental income covering mortgage payments – in the same way residential mortgage lenders all have different criteria when it comes to assessing worthy borrowers, buy to let’s are a diverse range. Whether you’re a first time buyer, first time landlord, ex-pat, looking to borrow with no income or on a HMO, there are lenders out there that can cater for you. We have been getting a wide range of enquiries on buy to lets in the UK and further afield, so to help we have a breakdown of useful information from our buy to let guide made from the most common questions. If you want to know more about buy to let mortgages read on, or if you want some buy to let advice right away give us a call or fill in a contact form now and an advisor will be in touch ASAP.
Buy to let mortgage FAQ
Answers to the most frequently asked questions on all things buy to let…
What credit score will I need?
Now there is no hard and fast rule on credit scoring systems. The one thing that is certain is that all are evolving and changing day to day, with lenders manipulating their pass/fail rates depending on their appetite to lend. From lender to lender, this can be one of the biggest differences seen in mortgage criteria. Some lenders are very strict, others relatively relaxed, and others have no credit score at all. When it comes to buy to let mortgages, credit score can be the difference between getting that headline best buy to let rate, and having to compromise with a higher rate, which ultimately eats into your profit. Seek advice before making any applications.
What are HMO Mortgages?
HMO = House In Multiple Occupancy.
This is defined by the number of tenants in a property, and the type of contracts they have signed. Usually, a lender will view a buy to let as a HMO when there is more than one tenancy agreement, for instance a mortgage on a student house where the students rent rooms individually. The majority of high street lenders will not offer standard residential buy to let mortgages on HMO properties, as regulation of these differs from standard policy. There are a handful of lenders considering HMO’s on mainstream buy to let mortgages, the rest of the lenders offering finance on these properties are basically commercial finance, which often come with higher rates and fee’s and require a larger deposit. Getting this wrong at application time can be costly, so make sure you check all the deals by speaking to one of the specialists we work with.
Securing a mortgage on more than one property
If you are an experienced landlord with a portfolio of properties, you may be looking for a lender that’s happy to secure one loan over more than one property. This again is something that can be done if you know what you’re doing. Many high street lenders only allow you to take a mortgage out on one house, and then may also require equity/deposit in excess of 40%. A more flexible buy to let lender or commercial buy to let lender may be the answer, so it’s important to find a service that offers you both, to compare and make sure if there’s a solution out there you’ll find it.
Experienced landlords | Getting a mortgage with a large property portfolio
Many lenders have restrictions on total exposure to the risks of the housing market, and so limit any borrower to a small number of properties and mortgages. Some lenders only allow a maximum of 3 buy to let mortgages in the background, however some have no limit. Those that favour large portfolio’s even offer better deals and more flexible criteria than would be available to a first time landlord.
Buy to let mortgage affordability
Making sure any borrowing is affordable is of high importance for any lender because they’ll want their money back plus profit, without having to repossess! Again, each lender is different. Some will have a rule that any borrower must have personal income of at least £25,000 for example, where others don’t ask for any proof of personal income, only that the new mortgage payments are covered by the rent.
What’s the maximum you can borrow on a buy to let?
This is assessed either on personal income (e.g. 4 x salary), or on the ratio of expected rental income Vs mortgage payment (e.g. Rent must cover the mortgage payment by 125%). To get the biggest buy to let mortgage you can, you’ll need to find a lender that best fits your situation, and most likely an expert to help you with it, as from here it gets complicated!
For example, if you have no personal income but expect rent to be £600 a month, and want a mortgage for £50,000, then you’d need to find a lender that only assesses the application based on the rental income. Say you find one that does this at a ratio of 125% based on an 8% interest only rate, then the mortgage payment would be £333. As £600 rental income is 180% of the £333 then this is an acceptable proposition.
To work out the maximum you can borrow based on expected rental income or property value, use our Ultimate buy to let calculator here. The specialist advisors we work with can help you find the maximum you can borrow pretty easily, just give us a call or drop us an enquiry with what you’re looking for, and one of them will be in touch ASAP. Don’t worry – there’s no obligation and a chat to one of them will always be free!
Maximum Loan to Value on buy to lets
The loan to value limit for buy to let mortgages has been slowly increasing over the last couple of years since the credit crunch, but still we aren’t seeing the same level of lending we used to. Certain lenders are currently offering lending up to 80% of the value of the property as a first charge; however some more specialist lenders are offering second charges and loans over and above this. If you’re looking for borrowing of 85%-100% you’ll need to talk to an expert, fill in one of our enquiry forms.
Which property types are acceptable for a Buy to let?
You can get a buy to let mortgage on pretty much any type of property, but again each lender will have their restrictions. For instance if you’re buying a run down property to renovate and let out, if its currently inhabitable or has some structural damage, then certain lenders wont touch it. It may take a specialist type of mortgage to fit your situation, one that’s not so easy to find on the high street or from a comparison site.
Buy to let Mortgage Age Limit (Minimum and Maximum Age Limits)
Anyone over the age of 18 can get a buy to let mortgage (subject to standard criteria). However certain lenders place restrictions on maximum age. For the most part, they need to ensure it’s affordable into retirement if there were no tenants in, but some lenders are less worried by this and have no strict age limit. Other lenders may require you to have an already pre-existing personal mortgage to begin with. Get in touch with us or use the live chat below and one of the brokers we work with will have a look into it for you, alternatively feel free you use our online search engine to compare the buy to let mortgages.
Buy to lets and limited companies
In certain circumstances it may be advisable to set up a limited company to own your property portfolio. Buy to lets can be taken out by companies with various pro’s and con’s, the main motivation would be to ring-fence the commitment from personal assets, and for larger portfolios certain tax benefits. As each case is so diverse it’s difficult to sum up each and every case in one paragraph, so if this is something you’re considering we advise you get in touch and a specialist can talk to you about your options. Read more info on Ltd company buy to lets here.
Buy to let mortgages for first time buyers
Simply put, the majority of mainstream lenders don’t like lending for buy to lets to people who have never owned their own home. There are several lenders in the market that do so long as you have adequate personal income, so get in touch and we’ll help get things moving.
Buy to let mortgage fees
Buy to let lender fees can vary dramatically overall, as with rates, they tend to be slightly higher than for residential mortgages. Some offer no fee’s with higher rates, some a fee with a better rate. Its important to get this right and calculate the total cost, as for example a headline rate of 3.5% with a 1.5% product fee might cost you much more than a 4% rate with a £299 product fee. It all depends on the loan size and your specific criteria, along with your preferences for different types of rate.
Buy to let mortgage rates
These tend to work in the same way as residential mortgages – you start with an initial tie in period of anywhere from 1-10 years, and then switch to the lenders buy to let standard variable rate. Although some lenders are offering tied periods for entire term of the mortgage if its what you want (subject to availability). You can have a fixed rate, a tracker, a capped rate, a discounted rate etc… all with their own pro’s and con’s. It important to weigh up all the options before jumping in, so ask before making an application. Visit this page to see the best buy to let rates out there
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