Buy to let properties are popular with people seeking a regular income as well as the potential for capital growth.

According to estate agents Hamptons, a total of 215,000 buy to let property purchases were made between July 2020 and September 2021, up from 164,300 during the equivalent period in 2019.

While buy to let mortgages have a lot in common with standard residential mortgages in so far as you’re borrowing to fund a property purchase, there are some big differences that you need to be aware of if you’re considering becoming a landlord for the first time.

You can find out more about all the different mortgage options that may be available to you, and how they compare, in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know.

Understanding buy to let mortgages

If you are looking to buy a property to rent out, but don’t have the money to buy it outright, you will need to take out a buy to let mortgage to fund your purchase.

Buy to let mortgages are similar to residential mortgages in so much as you borrow money from a lender to buy a property and you are then charged interest on this amount, however there are also some big differences:

Buy to let mortgages have higher interest rates

Buy to let mortgages are generally viewed as higher risk by lenders so their interest rates tend to be higher than standard mortgage rates. The reason that buy to let mortgages are seen as riskier is that landlords may struggle to collect rent at some point, and there’s a high likelihood that a rental property will be vacant for periods of time.

Affordability and how much you can borrow is worked out differently

Rather than just looking at your income and spending habits to work out how much you can borrow and if you can afford to pay the mortgage, lenders will also look at how much rental income you expect to make. Generally, lenders will want your rental income to be up to 145% of your monthly mortgage payments.

If you’d like to see how much you might be able to borrow for a buy to let property, simply enter your expected rental income in our buy to let mortgage calculator to get an estimate.

You will usually need a higher deposit

While you can find residential mortgages with as little as 5% deposit, buy to let mortgages usually require you to have at least 25% deposit. This means you will own a higher proportion of the property, which reduces the risk to the lender.

Buy to let mortgage fees can be expensive

When you take out a buy to let mortgage, you will normally have to pay an arrangement fee, which is often expressed as a percentage of the loan value. These can be much more expensive than those for a residential mortgage. For example, if you wanted to take out a £200,000 buy to let mortgage with a 1.5% arrangement fee, the fee would set you back £3,000.

Buy to let mortgages tend to be arranged on an interest only basis

While it is possible to arrange a buy to let mortgage on a repayment basis, the majority of landlords opt for interest only as it reduces their monthly outgoings. Of course if you decide to go for an interest only buy to let mortgage, you will need to think about how you will pay off the capital you’ve borrowed when the mortgage term ends. You can find out more about how buy to let mortgages work in our guide Understanding buy to let mortgages – Rest Less

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Who can apply for a buy to let mortgage?

There are a few criteria that most lenders will want you to meet before they consider lending you money for a buy to let property. These will vary from lender to lender, but they will usually require you to:

  • Have a deposit of at least 25% of the value of the property you want to buy to let
  • Have an annual household income of at least £25,000
  • Be younger than 75 – Many lenders have an upper age limit, usually around 75, at which point the mortgage must be paid off. Others, however, may offer higher limits, or not impose an upper limit at all, so it’s important to shop around
  • Have a strong credit rating – As with any type of lending, a strong credit rating will make you more attractive to lenders, so always check your score before applying. You can find out ways you might be able to boost your score in our guide Seven steps to improve your credit score.

Some lenders might also want you to already have a residential property that you either own outright or have a mortgage on. If you don’t, you may still be eligible but you may need to look a little harder for a good deal.

How do you apply for a buy to let mortgage?

The very first stage if you’re purchasing a buy to let property is to have a look at different buy to let mortgage deals and get a feel for what sort of deal you’d like. There are a lot of lenders and buy to let mortgages in the market, so if you are looking for a place to start it can be useful to use a comparison tool to see what’s out there. This mortgage comparison tool enables you to compare more than 15,000 mortgages from over 90 different lenders in minutes.

If you are unsure about anything it can be good to speak to a mortgage broker or advisor to make sure you find the best deal for you based on your individual circumstances.

If you’re looking for mortgage advice, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.

Get an Agreement in Principle

Once you’ve settled on a mortgage that is right for you, it can be a good idea to get an Agreement in Principle (AIP), also known as a mortgage in principle. This details how much a specific lender might be willing to lend you and it’s generally a good idea to get one to demonstrate that you are a serious buyer. Some estate agents ask for an AIP before they’ll agree to show you available properties.

To get an AIP, you will have to provide the lender with some basic financial information so they can run a credit check, so it’s worth getting this information together beforehand. The lender will tell you what they need from you, but this information will usually include bank statements, payslips and certain bills. It’s important to remember that the AIP isn’t a binding agreement, so when you come to apply for a mortgage, you may receive a different offer.

Get expert buy-to-let advice

If you’d like to discuss your options with a buy-to-let expert, you can get advice from a Rest Less Mortgages advisor today.

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Apply for your mortgage

Each mortgage lender will have a slightly different process for applying for a mortgage, but they will let you know what is needed and when. If you’ve used a broker to help you find a mortgage, they can apply for the mortgage on your behalf, and will let you know if the lender requires any additional information from you to support your application.

In the majority of cases, you will need to collect a number of documents to prove your financial situation, income and credit rating. Most lenders will ask you to provide any of the following documents:

  • Utility bills in your name
  • Benefits statements
  • Most recent three months payslips
  • P60 from your employer
  • Proof of identity – usually your passport or driving licence. Bear in mind that some lenders may want you to provide the actual document for their records, rather than a photocopy
  • Bank statements for the last three to six months
  • Address of the property you intend to buy
  • Contact details of your solicitor
  • Contact details of the estate agent you are buying the property through.

If you are self-employed or have more than one source of income, you might also need to provide additional bank statements as well as your tax return to prove your income.

Once your lender has all the information they need, they will start to process your application and will let you know if you need to provide any more information. The lender will then carry out checks on you and your credit history, and will arrange a valuation of the property to make sure it’s worth what you’re paying for it. They will also check if there are any issues that could reduce the property’s value, such as flooding or subsidence.

Once your lender has carried out all their checks and are satisfied with all the evidence you’ve provided to support your application, your mortgage application should hopefully be approved and you can proceed with your purchase. The timeline of application to mortgage approval can take anywhere from two to six weeks or more.

If your mortgage application has been declined, there could be a number of reasons for it, so it’s best to ask the lender to explain why you were declined. You can then understand what these issues are and establish whether there are any ways you can boost your chances of being accepted next time. Whatever you do, don’t start sending off more applications in the hopes of getting a mortgage approved, as this can have a significant negative impact on your credit score. For more information on this, have a look at our article What to do if your mortgage application is declined.