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A buy-to-let mortgage (also called a BTL mortgage) is a mortgage for a property you’re renting to someone else – as opposed to a residential mortgage, which is meant for a property you’ll be living in yourself.
If you’ll be letting out the property you’re buying, lenders will almost always require your mortgage to be a buy-to-let mortgage.
Higher interest rates: Because a buy-to-let mortgage is seen as a business investment, and brings extra risk because you can’t guarantee you’ll always have tenants, the interest rate is usually higher.
Bigger deposit: You’ll need a higher deposit than with a residential mortgage, because lenders see it as more risky. They typically ask for at least 20% while a residential deposit can be as low as 5%.
Tougher affordability checks: With a residential mortgage, lenders look at your income when deciding what they’ll lend you. But with a buy-to-let mortgage, they want to be sure the rental income will easily cover your mortgage payments – to the tune of 125%. So if your monthly mortgage payment is £800, your rental income should be at least £1,000 a month.
Many lenders also want you to be earning at least £25,000 a year from employment or self-employment, but some don’t have this requirement.
The type of buy-to-let mortgage you get depends on what kind of landlord you are. Since 2016, there have been two categories you can fall into – business, or consumer.
If you’re an “accidental landlord,” you’d probably fall into the consumer buy-to-let category. Accidental landlords are homeowners who decide to let out their property after the fact – for example, because they’ve inherited a property from a relative, they’re moving in with a partner, they have to relocate for work, or they’re going travelling for an extended period of time. Consumer buy-to-let mortgages are protected by the financial watchdog, the Financial Conduct Authority (FCA) and controlled by the same rules as a residential (standard) mortgage.
If you’re purchasing a property intending to let it out, you’re in the business buy-to-let category. Your buy-to-let mortgage will be treated like a business loan, and the lender will take the future rental income for the property into consideration when deciding how much you’re eligible to borrow.
Portfolio landlords are landlords who own 4 or more properties – also in the business buy-to-let category. If you wanted to buy more, you might find your choice of mortgages more limited – to lenders, the more properties you have loans on, the more risk there is.
Many of the fees that come with buy-to-let mortgages are the same as with residential mortgages – but there are a few extra costs you’ll need to keep in mind:
It’s worth investigating landlord regulations and landlord responsibilities to find out more about the costs involved in buying a property to let.
You’ll need to decide what type of mortgage you want. A repayment mortgage means that each month, you’ll be paying off part of the loan as well as interest. Interest-only means you’ll just be paying the interest each month and will need to repay the loan at the end. Many landlords opt for this type of deal.
With a fixed rate mortgage, you’ll know exactly what you’ll be paying each month, while variable rate and tracker mortgages can change – which could be useful if interest rates fall, but they can also rise.
There are two important aspects to any deal: the total cost during the deal period, and the remaining balance, including fees and incentives. We look at both when searching the market to find you the best deal. A Habito expert can talk you through the options.
Buy-to-let mortgages tend to be more expensive than residential loans. Some lenders don’t even offer mortgages for buy-to-let properties. You can search for buy-to-let deals yourself, or use a broker to search the whole market for you.
The majority of cost-effective buy-to-let mortgages are “intermediary-only,” which means you can only get them through a broker (like Habito!)
Your Habito mortgage expert will be able to check every buy-to-let deal and find the best option for your particular circumstances. Then, they’ll do the paperwork for submitting your application to the lender for you.
When you're ready to get started,find your mortgage with Habito. Free!
A 15% deposit is typically the bare minimum to get a buy-to-let mortgage.
If you’re already a landlord, a low deposit won’t stop you getting a loan, but it will majorly limit your choice of lenders and rates. If you’re buying to let for the first time, lenders often want an even bigger deposit, so 15% could get you turned down completely.
If you can, it might be a good idea to try to increase your deposit to at least 25%. That’s the magic threshold – where you’ll start to see your range of choices and rates improve significantly.
Find out how much you could borrow, and what the monthly payments would be, with our buy-to-let mortgage calculator.
As well as finding a deposit and proving your property is rentable, lenders will ask you for information about you and the property you’re buying.
Here are some of the main things lenders look at:
Property price: Some lenders won’t lend money for homes valued below £40,000 or so. Some even set the threshold at £100,000.
Property type and materials: Lenders tend to be more likely to approve buy-to-let mortgages for terraced, semi-detached and detached properties and purpose-built flats.
It might be more difficult to get a loan on a thatched barn conversion, for example, or an ex-council flat in a high-rise concrete block, or a block of flats over 4 floors with no lift – lenders tend to prefer properties that are easier to resell. And watch out for flats in buildings made with combustible external wall materials (cladding), which could mean you’ll need an ESW1 form to be approved for a mortgage.
But for the most part, as long as your property is structurally sound, chances are there’s a specialist lender out there willing to take you on. Your mortgage expert can help you find one!
The number of other properties you own already: If you have 4 or more mortgaged buy-to-let properties already, you’re classed as a portfolio landlord. Now, when you apply for a new loan, lenders will examine how well all your other properties are doing as part of your application. You might find your choice of mortgages is more restricted as well, as for lenders that means a lot more risk profiling to do.
How old you are: You need to be at least 18 to apply for most buy-to-let mortgages – and some lenders want you to be at least 25. There’s no upper age limit, because unlike a residential mortgage, your loan repayments don’t rely on your salary.
Remortgaging your buy-to-let mortgage is usually pretty straightforward.
Most lenders won’t let you remortgage to do things like pay a tax bill or invest in shares. It might be a good idea to check your reasons for remortgaging with your mortgage expert before you approach lenders.
If you’re looking for buy-to-let remortgage deals yourself, don’t be fooled by amazing rates and shiny deals. There might be other fees, and changing interest rates will affect how much you pay over the life of your mortgage – its total cost. A Habito mortgage expert can help you make sense of the options, and find the one that’s right for you.
Yes – but with caveats. It’s a good idea to speak to a broker to see what’s the best thing for you to do.
Many lenders will need you to own your own residential property (normally for at least six months) before they’ll offer you a buy-to-let mortgage.
If you’re a complete first-time buyer, and you want to go straight into buy-to-let, your options will be extremely limited. You’ll also lose your stamp duty exemption, which only applies if you’re buying your first residential property.
If you do get the thumbs-up from a lender, do your homework before taking on your first tenants. Renting can be profitable, but there are costs too. Like maintenance, landlord’s insurance and letting agent fees (think 15–20% of the rent you charge tenants). And there’s no guarantee your property won’t be empty for a few months.
While having good credit is obviously ideal, having a less-than-stellar credit history probably won’t completely prevent you from getting accepted for a buy-to-let mortgage.
That said, you might need more deposit to offset credit issues, and your choice of rates might be pretty limited. Your mortgage expert can look at your specific circumstances and help advise you on what your buy-to-let options are if you have bad credit.
Can I change a buy-to-let mortgage to a residential one?
Plenty of people make the switch from buy-to-let to residential mortgage – for example, they could be returning home after living abroad. Or they’re downsizing (or upsizing). But to do this switch, you’ll need to remortgage.
You could try your existing lender but it might not be the best deal, or may not allow you to switch. It’s likely there will be remortgage fees and possibly a new valuation. A mortgage broker can help you compare your options and find the right deal with the lowest costs.
You can definitely get around the challenges of being a freelancer when it comes to getting a mortgage. Here’s how.
Here's all you need to know about converting a residential mortgage into a buy-to-let mortgage.
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