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 to get 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.
In this guide, we provide an overview of the following key topics:
A buy-to-let (BTL) mortgage is a loan for buying a property that will be rented out to tenants rather than lived in by the owner.
Buy-to-let mortgages usually have higher interest rates and higher fees than standard residential mortgages, and the lending criteria are different.
From eligibility to applications and getting a mortgage offer, these are the steps you need to follow:
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.
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.
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.
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.
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.
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 best areas in London for rental yield if location is no object in your property search.
Read our comprehensive guide to buy-to-let mortgage affordability for more information.
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.
Property purchase price = £285,000
25% deposit = £71,250
To secure this property as a buy-to-let, you’d also need to charge monthly rent at around 25-35 per cent more than your mortgage payments.
New-build properties are often treated as ‘riskier’ by lenders, and you may need a minimum of 35 per cent deposit on one of these.
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.
Make sure you get the best mortgage rate by following these tips:
When shopping around to find the best buy-to-let mortgage rates, you’ll come across a selection of providers.
Some buy-to-let mortgage providers are mainstream lenders while others specialise in BTL.
Here’s an overview of some of the BTL mortgage providers to look out for:
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 mortgage provider and meet their criteria. Sometimes this means you’ll need to remortgage first, which can involve early repayment charges.
Looking for a buy-to-let mortgage? Let us know how you get on in the comments.
Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.
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