Buy-To-Let Mortgages

Eligibility and lending criteria

Buy-to-let mortgages are available from a variety of high street lenders and are suitable for landlords who want to own the property in their private names or in the name of limited company.

The eligibility criteria can change for people who are planning to rent out a property for the first time – First Time Landlords.

If you are a First Time Landlord, you will usually need to have owned a property previously and some lenders will require you to be currently living in a property that you own.

There are a few lenders that will accept a First Time Buyer but their criteria for affordability changes and these lenders will assess the mortgage against personal income as opposed to rental income. Otherwise, most lenders will assess the mortgage loan required against the rental income that the property would achieve in its current condition.

Many lenders will need to see evidence that you have the minimum level of income required to meet your own lifestyle costs and also help cover any mortgage payments due if the property does not have a tenant at any time. However, there are some lenders that do not have a minimum income requirement and will assess each case individually.

Most lenders will accept applicants who are at least 18 years of age but some require a minimum age of 21. There are also maximum ages. Some lenders have a limit of 75 to 85 years while others have no maximum age for borrowing.

Affordability

Lenders of Buy-to-Let mortgages will assess the maximum loan available against the rental income of the property in its current state. They will calculate how much the mortgage payments would be based on an interest rate which is higher than currently available to make sure the mortgage is likely to be affordable at a future date if interest rates rise. In addition, they will consider what tax rate the applicant pays at their highest level and make an allowance for this in the calculation.

The maximum loan may be less than you think based on these levels of stress testing. Contact us to check how much you will be able to borrow.

Types of mortgage repayment

Unlike residential mortgages, lenders are happy for you to choose between a traditional repayment mortgage and an interest only mortgage.

If you choose an interest only mortgage, the lender will accept that the mortgage can be paid off at a future date from the sale proceeds of the property.

Many landlords prefer an interest only mortgage. This enables them to build up surplus funds to purchase additional property, or because they want to keep the monthly mortgage cost as low as possible and be free to pay off some capital from surplus rent.

If you choose a repayment mortgage or to pay off capital manually each year, you will naturally reduce the mortgage balance during the term of the mortgage which may give you access to lower interest rates at a future date.

Privately or Limited Company Ownership?

The most common way to own a Buy-to-Let property is in your private name. However, because of tax changes in recent years, many landlords have chosen to purchase properties in a special limited company which has been set up purely for renting property. This is known as a Special Purpose Vehicle or SPV. This is a specialist area which we can help you with.

Property types accepted

Lenders will be comfortable if the property could be readily sold to a potential residential purchaser at a future date. This means that the property can be sold as normal household with a single kitchen, living space as well as bedroom.

Most landlords with just one or two properties tend to rent the property out as a family unit which is more acceptable to all lenders.

The condition of the property is important and most lenders will want to know that the property can be rented out in its current state, thus obtaining a rental income as soon as possible.

Whilst many smaller landlords purchase family units to rent out, there are specialist lenders that will consider properties which are let out to multiple tenants – House of Multiple Occupancy (HMO) and also properties on a single freehold title that have been converted to separate self-contained flats (Multi-Units).

Energy Performance Certificate – EPC

There are regulations which apply to properties which are let out. One of these is the minimum EPC rating that the property must have.

It would be prudent to check that the EPC rating of the property is not only acceptable today but can be improved if required, to meet new regulations.

Landlord regulations

There are regulations which landlords need to be aware of.

Example of these are:

• To keep your rental properties safe and free from health hazards.
• Ensure all gas and electrical equipment is safely installed and maintained.
• Provide an Energy Performance Certificate for the property
• Protect your tenant’s deposit in a government-approved scheme
• Check that your tenant has the right to rent your property, if it’s in England
• Give your tenant a copy of the How to Rent checklist when they start the tenancy.
• Fit and test smoke and carbon monoxide detectors.
• Follow fire safety regulations for property in a purpose-built block of flats or for houses and property adapted into flats.

There may be additional requirements so it is important to check and keep up to date with the regulations.