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Buy-to-let mortgage rates explained

4-minute read

Catriona Smith

22 July 2022

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Considering becoming a landlord or growing your property portfolio? If you’re buying a property that you want to rent out rather than live in, then you’ll probably be looking into a buy-to-let mortgage.

Our step-by-step guide explains the process, common questions, and tips for finding the best buy-to-let mortgage rates on the market.

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How to get a buy-to-let mortgage

1. Check if you’re eligible

Your bank will review your mortgage application based on buy-to-let mortgage criteria. These vary depending on the lender, but include things like age restrictions and a minimum annual income (usually around £25,000).

Barclays has a buy-to-let mortgage calculator you can use to check how much you might be able to borrow and how much your monthly payments might be. You’ll need to fill in details about your income and outgoings here. Download our budget template to get a clear picture of your personal finances.

2. Get an agreement in principle (optional)

You might want to get an agreement in principle before you start your buy-to-let mortgage application. This tells you how much a bank might be willing to lend you, without affecting your credit score.

Sometimes known as a ‘mortgage in principle’, this is a useful gauge if you’re still early on in the house hunting process and are wondering how much money you’ll have for a property. It also shows estate agents you’re a serious buyer.

Bear in mind though, the agreement in principle is only valid for 90 days.

3. Contact your bank

The next step is to speak to a bank or mortgage broker to find the best mortgage deal for you. You can book an appointment with them to talk through buy-to-let mortgage rates, affordability, and the different products.

This meeting will kick-start your mortgage application process.

4. Apply for your mortgage

Your mortgage broker or bank will start your mortgage application when you have your first mortgage meeting.

You’ll need to give them lots of information about your finances and the property you want to buy. Existing landlords will also need to show bank statements that show rental income from any other properties.

5. Wait for your mortgage offer

It usually takes between two to four weeks for a mortgage offer to come through. In that time your bank will complete a full credit check and instruct a valuation of the property you want to buy.

How is buy-to-let mortgage affordability calculated?

Banks will look at how much rental income you’re likely to make from the property when deciding whether to approve your mortgage application. This is different from residential mortgages, which are based on salary and outgoings.

To help you decide if your property is going to be a good investment, you can estimate rental yield. This is based on how much income you expect to generate in rent every year, as a percentage of the property’s value.

Location is an important factor when it comes to affordability and rental yield. Here are some of the best buy-to-let areas in the UK and the top 10 areas for rental yield if location is no object in your property search.

How much deposit do you need for a buy-to-let property?

Unless you’re a cash buyer then you’ll need to arrange a mortgage. And that means you’ll need a deposit.

A buy-to-let mortgage deposit is usually about 25 per cent of the property’s value – and typically higher than the five to 10 per cent deposit you need for a house you plan to live in.

Is interest-only or repayment best for buy-to-let?

You have two options with a buy-to-let mortgage: repayment or interest-only.

A buy-to-let interest-only mortgage means you’ll only pay off the interest each month, so you’ll take home a larger proportion of the rent from your tenants.

A repayment mortgage means you’ll be paying off the amount you owe, plus interest, over the time period agreed in your mortgage.

Both have their pros and cons, but many portfolio landlords choose interest-only mortgages to boost their rental profit. This just means you'll need to pay off the outstanding balance at the end of your mortgage term.

This article is intended as a guide only. Please get advice from a banking and finance expert if you’re not sure of anything.

How to find the best buy-to-let mortgage rates?

Make sure you get the best mortgage rate by following these tips:

  • shop around – there are lots of comparison websites out there to help you find the right mortgage product for you
  • speak to a mortgage broker – they can offer expert financial advice, help you find a deal that suits your financial circumstances, and often access more products
  • choose between a fixed and a variable rate of interest – a fixed rate is usually for two, three or five years while a variable rate can go up and down
  • check your credit score – and try to improve it if you need to

Can I change my existing mortgage to a buy-to-let?

Some landlords start out through chance and circumstance. If you’re moving out of your home but want to keep your property then you might be thinking about letting it out.

The good news is it may be possible to change your existing mortgage to a buy-to-let mortgage. You’ll just need to speak to your existing mortgage provider and meet their criteria. Sometimes this means you’ll need to remortgage first, which can involve early repayment charges.

Do you know your tax responsibilities?

Once you have your property and are renting it out to tenants, make sure you know about buy-to-let tax changes as a landlord.

Our guide to Self Assessment for landlords can help you when it comes to filing and paying your taxes.

Are you new to buying a buy-to-let property? Have a read of our guide on how to become a landlord to make sure you’re up to date on regulations and your responsibilities.

Looking for a buy-to-let mortgage? Let us know how you get on in the comments.

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Photograph: I-Wei Huang/stock.adobe.com

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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