Compare buy to let mortgages

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  • Discounted variable rate

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Buy to let mortgage criteria

  • Your property rental income must be more than 125% of the mortgage payment, which is also known as your rental yields.
  • You will require a minimum 20% LTV deposit; a higher deposit can help you get better interest rates.
  • If you pay the higher tax category, then the rental income will need more than 145% of the mortgage repayment.
  • Some buy to let lenders require a minimum income of £25,000 per annum.
  • Age limitation and requirements may apply, most lenders prefer lending to people over the age of 25 and some mortgage lenders will not lend if you are below the age of 25.
  • Some of the criteria’s from buy to let lenders include that you must have a residential mortgage under your name.
  • Some lenders will offer buy to let mortgages for first time landlords.

Buy to let - How to calculate your rental yields?

The simple formula for calculating your rental yield would be:

Rental yield (Ry) = (Your annual rent for the property / your property value) x 100

For example:

  • Your rental per month is £1,500 x 12 months = £18000 per year
  • Your property value is £300,000
  • Ry = £18,000 / £300,000) x 100 = 6%

Buy to let mortgage - How can I calculate return on my investment?

You can simply calculate your return by doing below calculation:

Total earnings and asset value – total investment and costs incurred

total cost of investment X100

For example:

  • Your total earnings over 2 years is £36,000
  • The asset has remained the same at £300,000
  • You spent £10,000 in fees and upgrades to the property and paid £300,000 for the investment

Return on investment = (£36,000 + £300,000) – (£10,000 + £300,000) / £300,000 x 100 = 8.66% in 2 years

Compare buy to let mortgage deals in 5 easy steps

  • 1. Work out your rental yield or your estimated rental income to see which mortgage provider will lend you the required sum.
  • 2. Do a loan to value (LTV) calculation and look at your preferred lender’s rates to work out your monthly buy to let repayments.
  • 3. Check and calculate the true cost of buy to let mortgage including product cost and other fees to see if you can afford the mortgage.
  • 4. Decide whether you want a repayment mortgage or an interest only mortgage.
  • 5. Decide if you want a standard variable low rate mortgage or a fixed rate mortgage so your monthly payments are set for the agreed terms.

Buy to let mortgage pros and cons

  • buy to let mortgage rates are very competitive compared to residential mortgages
  • retired and older borrowers can take out buy to let mortgage
  • Typically, more expensive when compared to similar residential mortgages
  • Minimum age required, borrower must be 25 or older

Variable Rate Buy to Let Mortgage

If you take out a variable rate buy to let mortgage your mortgage interest rates can go up or down as the mortgage rate are not fixed. There are 2 options with variable buy to let mortgages;

Tracker mortgages

This usually follows the Bank of England’s base rate. Your interest rate will go up or down depending on how the Bank of England’s base rate. The interest rate is usually slightly higher than the actual Bank of England base rate

Fully Variable mortgages

The mortgage lender decides on interest rates and they can change the mortgage rates at any time.

Fixed Rate Buy to Let Mortgage

With a fixed rate buy to let mortgage your monthly payments and interest will be fixed for the terms you have agreed with the lender. Typically, you can fix your mortgage for 2, 3 or 5 year terms, you can also fix for other terms such as 10 years if you prefer a longer term fixed mortgage.

When your fixed term comes to an end, you can Remortgage with the same lander or completely switch to another mortgage lender.

As a landlord what additional fees and cost I should consider?

  • 1.Accountancy and Legal fees – You could be charged for a tenancy agreement if you go through an agent, and also creating & managing landlord’s annual tax return and accounts.
  • 2.Maintenance cost of your property – as a landlord you are responsible for health and safety requirements, you will need to maintain electricity and gas smoke alarms.
  • 3.Letting agency fees – The letting agency will charge you for finding a tenant, carrying out a credit check and references. You might also want them to provide full management service for your property.
  • 4.Insurance – As a landlord, you are required to get buildings insurance, you can also take out specifically designed landlord insurance cover for your rented property.
  • 5.Decoration and cleaning costs – In between tenants, you are required to clean the property to a professional standard, repair any damages and redecorate if needed. If you have a long term tenant then you might need to redecorate whilst they are in the property.

Buy to Let Mortgage for Holiday Lets

If you are thinking of renting out your property as a holiday home, you need to take out a specific holiday buy to let mortgage. Standard buy to let mortgage terms will not allow you to rent out your property as a holiday home.

Usually, you are required to have a much higher personal income to qualify for a holiday buy to let mortgage but you can offset a lot your costs for tax purposes and pay a lower rate of tax because it is classed as a business.

Buy to Let Remortgage

Once your buy to let mortgage term end, your mortgage lender will move you on to their standard variable mortgage.

SVR mortgage rates can be expensive when compared to a fixed rate so we would recommend that you start comparing a buy to let remortgage 2 to 3 months before the end of your current deal.

Most of the UK lenders allow you to compare and secure Remortgage deals three to six months prior to your contract end date.

You can simply remortgage to get a better deal or to borrow more to improve your rental property.

Can I Get Any Tax Relief on a Buy to Let Mortgage?

Landlords and property owners were previously able to deduct the interest paid on their mortgage from their tax amount, however as of 2017 tax relief is being phased out.

From April 2020, landlords and property owners are no longer allowed to deduct mortgage interest from the due tax.

You can claim a 20% tax credit on the interest you pay out however.

Buy to let Frequently asked questions

Yes, you are required to insure the building so you would need buildings insurance for a buy to let property. You can also get damage insurance as an optional cover to protect your building against any damage which are caused by the tenant. If your property is furnished, we would recommend getting contents insurance but it is not mandatory. It would also be looking at specialist landlord insurance because this can cover legal costs should your tenants bring a claim against you or you need to make a claim against them.

No, buy to let mortgages are not regulated by the FCA (Financial Conduct Authority). However, arranging and mortgage advice of buy to let mortgages are regulated by the Financial Conduct Authority (FCA).

Yes, you are able to get buy to let mortgage and some mortgage lenders prefer offering buy to let mortgages to limited companies.

Most of buy to let mortgages are interest only, which means you are only paying monthly mortgage interest. If you arrange interest-only mortgage then your monthly payments are lower than a repayment buy to let mortgage, but you will need to clear the loan at the end of the agreed period. If you are taking an interest only mortgage it is advised that you invest the income from the property to ensure you can pay the loan at the end of the period. Having an interest only mortgage can also reduce your costs whilst the property is empty.

If you are renting out entire property or just a room, it will be classed as a rental income through a rental property that is why in most cases you are required to have buy to let mortgage that has permission to be used a holiday rental. If you are unsure, you can always ask your mortgage lender and check their mortgage terms.

As per the mortgage regulations, you will need to use and live in a minimum of 40% of the property to get a residential mortgage. However, mortgage lender terms usually state that you are not allowed to let any part of your property under a residential mortgage.

If you want to rent out a room or a specific part of your property, you should contact your mortgage lender and get further advice, they may change your mortgage to a buy to let mortgage.

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