Buy to Let Mortgages Explained

If you’ve been wondering ‘how do buy to let mortgages work’, wonder no more. Let Simply Specialist Lending explain.

How is a buy to let mortgage different from a standard residential mortgage?

The biggest difference is that the amount you are able to borrow will depend largely on how much rent you will be able to charge. Lenders use interest cover ratios (ICRs) to estimate how much profit you are likely to make. Lenders tend to expect that the rental income on any property amounts to at least 125%, and often up to 150%, of the mortgage payments on the property. Other factors may include your personal tax band and the length of the fixed rate you are taking. 5 year fixed rate mortgage deals often allow you to borrow slightly more.

Most buy to let mortgages are taken on an interest only basis – this means that your monthly payments only cover the interest on your loan. At the end of the term you will need to repay the full amount borrowed. Lenders will expect you have a plan in place to meet this repayment. Interest and capital payment buy to let mortgages are available so please do not hesitate to ask one of our brokers.

How much is a buy to let mortgage deposit?

In general, you will need a larger deposit for a buy to let mortgage than for most standard residential mortgages. Look to being able to put down around 25% of the property’s value to secure a keen interest rate.  You may be able to secure a buy to let mortgage with a deposit of 15% but interest rates will be much higher, the rental income will have to be strong and there may be additional requirements on you, the borrower. 

How can I compare buy to let mortgages?

With such diversity in the market, your best bet is to ask a mortgage broker to act for you. The relationships that Simply Specialist Lending have with lenders means that we are in a privileged position when it comes to finding you a deal. We know that the deal that looks like the cheapest buy to let mortgage may not be the best product for you.

What is a portfolio landlord?

Lenders vary but if you have 4 or more BTL properties you may be considered a portfolio landlord and be subject to a more detailed underwriting process. If this applies to you there are specific rules that you must abide by. These rules were introduced in 2017 and in short make the application process more rigorous. Simply Specialist Lending have experience with portfolio mortgages.

What type of property can I get a BTL mortgage on?

A Buy to Let mortgage is available on many different types of properties including houses, flats, multi-unit blocks and accommodation above commercial properties. We can also help with mortgages for houses of multiple occupancy.

Do I need a special type of mortgage for a house of multiple occupancy?

Houses of multiple occupancy (HMOs) refers to any property that is let out to more than 3 tenants who aren’t from one household, for example a house that is let out as student accommodation. You’ll need a product that is more specialised than a standard buy to let mortgage for an HMO, but don’t worry because Simply Specialist Lending has the expertise to help you.

HMO mortgage rules are slightly stricter than for other buy to let mortgages, for example you will generally be expected to be an experienced landlord, and HMO mortgage rates can be more expensive as they are felt to carry a higher risk to the lender. Although some of the considerations will be the same, such as the amount of rental income you expect to return.

Our brokers have relationships with HMO mortgage lenders which allow us to be well-placed to understand the different criteria that lenders have, and subsequently submit your application to the most  appropriate one for you. Speaking to one of our HMO mortgage brokers could be the difference between whether or not you find the deal for you.