Buy to let mortgages - finding the best deals for you

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A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.   

MOST FORMS OF BUY TO LET MORTGAGE ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

Whether you are thinking about investing in your first buy-to-let (BTL) property, or expanding your buy to let portfolio, or if you simply want to Remortgage your existing buy to let to a better deal or to raise some capital, at Your Mortgage Experts we have all the expertise you'll need to help you along the way.

Being a landlord can be a daunting challenge, but also a rewarding one. 

However, it is important to recognise that buying to let can be a serious proposition for some people. Potential borrowers should understand that the letting of property is a complicated business and it is important to get appropriate advice.

At Your Mortgage Experts we are able to arrange the mortgage but cannot give advice on buying to let as a business proposition. Nothing in this website should be taken to indicate that buying to let is a suitable business proposition for any particular person. Before entering this market you are advised to consult your own independent professional advisers generally and in particular on the following matters:

• Acquisition and Disposal Costs (stamp duty, conveyancing costs, agent’s fees, cost of furniture and fittings)
• Mortgage Loan Repayment
• Management of the Property
• Political and Economic Factors
• Business and Investment Factors
• Tax 
• Buy To Let Mortgages and Your Rights

A buy-to-let (BTL) mortgage is a loan for purchasing or remortgaging a property which is let to tenants, and not lived in by the borrower. Buy to let mortgage interest rates and fees are typically higher than standard residential mortgage. You will also generally need a larger deposit to purchase a BTL property – at the minimum you will need 15% deposit (i.e. you can borrow up to 85% loan to value), and ideally larger to access the best deals for buy to let. A good number of mortgage lenders also restrict the LTV to 75%, which means that to find the best BTL deals you will need a deposit of 25%.

Like any form of investment, there’s a lot to think about. Regulation on BTL mortgages as well as mortgage product offering has changed and continues to change, so it is important to understand the basic, to speak to an experienced mortgage broker, and you should also seek professional advice.

The short answer is: Yes, you need a BTL mortgage in order to rent out a property (unless you are a cash buyer).

If you plan to rent out the property where you currently live, you may be able to get “consent to let” from your existing mortgage lender. You may want to do this if, for example, you plan to relocate away for work for a period of time, but you would return to live again back at your home.

If you plan to rent out your home, you are legally obliged to tell the lender, and there are obvious risks if you do not do so.

A BTL mortgage is different from a standard residential mortgage. Unlike a residential mortgage, where how much you can borrow is based on your own income (among other things), a buy to let mortgage is also assessed based on how much rent the property can generate.

A buy to let mortgage is largely assessed on the property's profitability, i.e. the rent generated vs. the cost of the property (mortgage monthly payment, other property costs) – rather than how much you earn and your personal affordability.

Having said that, many buy to let lenders require you to have a minimum income, typically £20,000, but in some cases higher.

Other differences include:

• Interest rates on buy-to-let mortgages are generally higher than residential mortgage rates.
• The minimum deposit required for a buy to let mortgage is higher than a residential mortgage. To access most BTL mortgage lenders, you will need at least 25% deposit; fewer lenders will accept lower deposit of 15%
• Arrangement fees on a BTL mortgage can be higher than on a residential mortgage.  Arrangement fees may also be calculated as a percentage of the mortgage amount, rather than just a flat fee. 

Buy-to-let mortgage rates are generally higher than residential mortgages. Often you pay 1%+ more in interest. However, there are plenty of competitive deals on the market. Please speak to us and we will be happy to quote you for the most cost-effective options available to you.

It is good to know that with a large deposit, you will be able to access the cheapest mortgage deals. The best rates are available with deposits of 40% or more. The smallest deposit you can get a buy-to-let mortgage with is 15 %, although your choice of products will be very limited and more expensive. A deposit of 25% or above is more typical and it will let you access a much broader range of mortgage lenders and products.

At Your Mortgage Experts we will look at your specific needs and circumstances and discuss the best course of action for you.

Interest-only mortgage vs repayment mortgage?

Buy to let mortgages are generally taken as interest-only mortgages. This will help minimise the monthly mortgage payments. Providing that the mortgage is affordable, you can instead take out a repayment buy to let mortgage.

However, it is important that you realise:

• A Repayment mortgage is the only  way to guarantee repayment of the loan at the end of the mortgage term and is the most cost effective method over the full term of the mortgage.
• If you intend to set up the mortgage on an Interest Only basis, this means that the monthly payments are only repaying the interest on the money you have borrowed; at the end of the term you will be required to repay the full value of the loan.  In this case you should have a clear strategy for the repayment of the loan at outset. If you do not have sufficient funds to repay the outstanding balance at the end of the term the lender has the right to repossess and sell your property. 

So this means that with an interest-only mortgage, to repay the capital back at the end of the mortgage term, you will either need to use savings that you will have accumulated, or sell the buy to let property. Please note that this does not come risk free, as property prices could go down and this could leave you with a shortfall if there is not enough equity left in the property at the time of selling it. 

With an interest only mortgage, you also end up paying more interest overall as you are paying interest on the entire amount borrowed for the whole term. With a repayment mortgage you gradually pay the capital off, and interest is only charged on the amount of capital left each month.

In addition, whenever you choose a mortgage think about  Early Repayment Charges:

• The recommended mortgage may have early repayment penalties which could be payable should you wish to switch or repay the mortgage in full during the initial period. Please always refer to the Key Facts Illustration, that the mortgage adviser will issue, to ensure you are aware of any penalties on early repayment.

Similarly to residential mortgages, there are several different types of buy to let mortgages – please see below for a brief outline.

• Fixed rate: with a fixed rate mortgage, the interest rate, and therefore your monthly payments, are fixed for a specified period of time – and don’t change until an agreed date, irrespective of any changes made by the Bank of England to their base rate. You can fix a mortgage for an initial period of 2 to 3 years, up to 10 years or sometimes even more. The longer you fix the interest rate period, the more expensive the interest rate, so you will want to balance this decision, also based on your personal circumstances.
• Tracker: A tracker mortgage has an interest rate that typically follows the Bank of England base rate, plus a an additional margn. Your mortgage payments can therefore change and you don’t have the certainty that you would with a fixed rate mortgage. If the base rate rises, your payments will go up. 
• Standard Variable Rate (SVR): SVRs do not track the Bank of England’s base rate, but they are set by a mortgage lender, generally at their discretion. Therefore if this changes, there will be a corresponding change in your monthly payments.
• Lenders will tell you in advance about changes in your rate and when they will occur.
• Discounted variable: with these mortgages, the interest rate is a discount on the lender’s Standard Variable Rate (SVR) for a set initial period of time. The discounted rate will therefore move up and down in line with the lender’s SVR.

Please talk to us and we will be happy to help.

The tax regime on BTL has changed in recent years, and it is likely to continue to change overtime. There are several taxes that you should be aware of, and please note the following:

• The disposal of the property may be subject to capital gains tax under current legislation.
• The rental income will be liable to income tax; it may be possible to offset the loan interest against some of the rental income when calculating the taxable income.
• Appropriate advice should be obtained from the applicant’s accountant on the taxation of letting a property.

If you purchase a buy to let property or a second home, you will need to pay stamp duty land tax (SDLT). Typically, the stamp duty land tax rate on an investment property or on a second home is 3% higher than the SDLT rate payable on a standard residential property.

The amount of SDLT payable depends on the value of the property and where in the UK it is.

For the latest stamp duty rates, please refer to the calculator provided by HMRC – by clicking here, or go straight to our mortgage calculator to quickly check the stamp duty payable here. 

Please note that by clicking on the link above you will leave Your Mortgage Experts' website.  Your Mortgage Experts has no control or responsibility for the pages you are about to access, or to where any subsequent links may take you. 

When sell your buy-to-let property for profit, you will pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold. You should seek professional tax advice to work out your capital gain tax liability when you plan to sell your property.

Rental income is taxable, and any rent received must be declared in your tax return.

In very simplistic terms, you will work out how much you have to pay by deducting certain ‘allowable expenses’ from your taxable rental income. Also, the tax rate you pay will depend on your income tax banding (20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate).

Furthermore, recent new rules for tax relief on mortgage interest payments means that from April 2020 you will only be able to get basic rate tax relief (20%) on your mortgage interest payments.

Again, you should seek professional tax advice to understand the implications for you.

At Your Mortgage Experts we are not tax specialists, and as such we are not allowed to give tax advice. The information provided here is of a general nature only, and it is not a substitute for tax advice specific to your own circumstances. You should seek professional advice from a tax and legal adviser, before you take or refrain from any action. Please also note that the Financial Conduct Authority does not regulate tax or legal advice.

Whilst we endeavour to use reasonable efforts to provide accurate and reliable information, we do not warrant that it is such, as tax and the regulatory regime change on a regular basis.

The information provided is only meant to be prompt for you to be aware that you need to seek tax advice in relation to buy to let properties.

Do you need BTL insurance? The simple answer is “it depends”. Check out the section below.

It is a requirement of your mortgage agreement to have buildings cover in place. Depending on the type of property (freehold vs leasehold) you may need to take up insurance yourself, or ensure that the insurance is in place.

If you own a freehold property (e.g. a house), you will need to have your own landlord building insurance in place. If you own a leasehold property (e.g. a flat), you will need to make sure that the building has a building insurance in place. 

Buildings insurance policy cover against fire, theft, flood and a several other risks should the unexpected happen.

You do not have to have a content insurance in place. However, you may wish to insure contents that you own – so if the property is furnished, for example, you may want to include an element of contents insurance cover. This can either be purchased as a standalone insurance policy, or added onto your buildings insurance. 

Tenants are responsible for insuring their own content, and they can purchase tenants’ contents insurance as a standalone policy. 

This insurance is also optional for landlords, and it is taken if you want to have additional peace of mind.

If tenants fall into rental arrears, the rent guarantee and legal expenses insurance will not only pay for the rental arrears, ensuring that the landlord is not out of pocket, but it will also cover the legal expenses involved with evicting the tenant 

Being a landlord can be time consuming for many people, as it can involve quite a lot of management on your part. If you do not have the time, you can pay an estate agent to manage the property on your behalf, however, this will cost you money and the estate agent will generally charge you a percentage of the monthly rent – so you will need to factor this into your costs.

You’ll also have specific responsibilities as a landlord such as making sure that gas and electrical appliances are in safe working order.

Should you decide to manage the property yourself, you will need to ensure that you follow up with maintenance issues, comply with regulation, deal with any emergencies (such as boiler breakdown, plumbing issues), ensure rents is paid to you regularly.

If you are thinking about becoming a buy to let landlord, there are a number of things that it is important to be on top of:

• Do your numbers
• Be aware of the regulatory requirements for landlords
• Decide if you need a property manager vs DYI

You will want your buy to let investment to be profitable. Therefore please make sure that you consider all the various costs such as:

• Mortgage monthly payments
• Insurance (landlord insurance, building insurance)
• Any estate agency fees to let and help you manage the property, if you choose to do so
• Service charge and ground rent for leasehold properties
• Income tax due on the rental income
• Any costs of maintenance and contingency costs (that could vary between 5%-15% of your rental income, depending on the state of the property and other factors)
• Any contingency funds for unexpected rental voids (you may wish to cover anything between 2-6 months rental void, depending on the strength of the local rental market)

There are a lot of rules in place that apply to buy to let properties and landlords. Here are some of the responsibilities of a landlord to help you get started – you should make your research and keep up with regulatory developments.

You will need ensure that your property is safe for people to live in and consider things like:

• electrical and gas equipment safety installation, regular checks and ongoing maintenance of those equipment. Gas appliances will need an annual gas safety certificate. 
• smoke alarm
• carbon monoxide alarm
• any furnishings you provide must be fire safe
• there must always be access to escape routes in the event of a fire.

You will have to maintain the property, and if something happens that will make your property unsafe or insecure while tenants are living in it, you must resolve the problem and pay for any repairs.

Energy performance certificate

Before you market your property to prospective tenants, you’re required to provide an energy performance certificate (EPC). The EPC gives properties an efficiency rating from A (the most efficient) down to G. To get an EPC, you’ll need to contact an accredited assessor. Once you have, it is valid for 10 years.

Protect the tenants deposit

You have to protect a deposit received from your tenants

If you get a deposit from your tenants, you must place it in a tenancy deposit protection (TDP) scheme. There are a number of TDP schemes, which you can choose and research online.

The TDP are backed by the Government, and they are there to ensure that tenants get their deposits returned to them as long as they meet the terms of their tenancy agreements, pay their rent and don’t damage the property. You, or your letting agent, must put the money your tenant provides as a deposit into a TDP within 30 days of receiving it. At the end of a tenancy, you have to pay the money back within 10 days of agreeing on the sum to be returned.

Checks on tenants right to rent

If you rent out a property in England, you have a legal obligation to check tenants’ right to rent. This involves determining whether people are legally allowed to rent residential property in England. 

If you don’t comply and you accept a tenant who doesn’t have permission to rent property in England, you risk being fined.

Disclaimer 

The above is no an exhaustive list of your responsibilities as a landlord. It is only intended as a general guide, to help you cover some of the basics, and prompt you to do further research to make sure that you are fully aware of your responsibilities.

Being a landlord can be time consuming for many people, as it can involve quite a lot of management on your part. If you do not have the time, you can pay an estate agent to manage the property on your behalf, however, this will cost you money and the estate agent will generally charge you a percentage of the monthly rent – so you will need to factor this into your costs.

You’ll also have specific responsibilities as a landlord such as making sure that gas and electrical appliances are in safe working order.

Should you decide to manage the property yourself, you will need to ensure that you follow up with maintenance issues, comply with regulation, deal with any emergencies (such as boiler breakdown, plumbing issues), ensure rents is paid to you regularly.

Whichever decision you take about managing your property, please see our views on "Management of the property" below.

Houses in Multiple Occupation, or HMOs, are properties with a minimum of three unconnected tenants sharing kitchen, bathroom and toilet facilities. Unconnected means unrelated. You may think of HMOs as house share.

This type of accommodation has become especially popular with young professionals saving for a place of their own, or students, and are more common in more expensive urban areas.

HMO properties are usually considered more profitable than standard rental properties. However, they are subject a different set of rules.

Licensing may be required from your local authority. Typical requirements to run an HMO will be to have fire safety measures in place, such as smoke alarms, fire rated doors; and other measures such as electrical certificates, carbon monoxide detector, gas safety certificate. Rooms may be subject to minimum size guidelines. You should check the local Council, as each may have their own specific additional requirements.

The local authority will typically issue an HMO licence valid for five years, and they charge a fee for issuing it. The licence must be renewed before it runs out, if you will continue to run the property as an HMO.

You can apply for an HMO licence by postcode using the link below, where you can also find out more information by clicking here.

Please note that by clicking on the link above you will leave Your Mortgage Experts' website.  Your Mortgage Experts has no control or responsibility for the pages you are about to access, or to where any subsequent links may take you. 

The short answer is Yes, with an HMO property you will need a specialist HMO mortgage. 

You cannot run an HMO with a standard BTL mortgage. 

Many lenders prefer borrowers that have previous experience as a standard BTL landlord, before they will consider an application for an HMO mortgage. There are only a few lenders that accept borrowers for HMOs, without any previous landlord experience.  

HMO mortgage rates are generally higher than the standard buy to let mortgages. 

Finding the right finance for an HMO can be complex. Please get in touch for further details and for a quote.

• Applicants should bear in mind the possibility that rent control for Assured Tenancies could be introduced.
• There could be a fall in the value of the property – past performance is not necessarily a guide to the future and the value could go down as well as up. In the future, this could mean that your mortgage loan exceeds the property’s current market value, i.e. you could be in a ‘negative equity’ situation.
• There could be a decrease in rental income due to adverse economic conditions or as a result of a substantial increase in the supply of rented accommodation in a particular area. Rents will also be affected by the location and condition of the property.
• Interest rates could increase on any mortgage taken to acquire the property without a corresponding increase in rental income to cover the interest.

• There could be difficulties with tenants in breach of tenancy agreements, including failure to pay rent and in obtaining possession under the relevant legislation.
• There may be periods of rental void when the property is not tenanted and so no rent is receivable.
• Investing in a single property can result in a lack of spread which should not usually be contemplated where the applicant does not already have a good spread of investments in his or her overall investment portfolio.
• The lower the sum borrowed the more the rental income is likely to exceed the expenses and outgoings.
• It will not normally be in the applicant’s interest to realise, cancel or surrender any existing investment in order to purchase a property to let.

The Financial Conduct Authority (FCA) has been responsible for regulating most mortgage sales from 1 January 2013.

It is very important to understand that very few Buy-to-Let mortgages are regulated by the FCA.

Consumer Buy-to-Let mortgages are covered by the Financial Ombudsman Service. A Buy-to-let mortgage is classed as Consumer Buy-to-let if:

• you have inherited the property, which you have previously lived in, and decided to rent it out,
• OR you / your immediate relative intend to live in the property in the future (delete as applicable). 

If you do not fall under the above category of Consumer BTL, the Buy-to-Let mortgage is considered a Business Buy-To-Let and is therefore NOT regulated by the FCA. 

More specifically, a Business Buy to Let is classified as such if you are entering into a BTL agreement to buy a property and at the time of the purchase it is intended that the property will be let under a rental agreement by someone other than yourself, your spouse, partner or immediate relative and it has not at any time been occupied by you your spouse, partner or immediate relative.

With a Business BTL mortgage, you will not be able to take complaints about this type of mortgage to the Financial Ombudsman Service. Additionally, you will not be able to seek redress from the Financial Services Compensation Scheme if TenetLime Ltd becomes insolvent.