Buy-to-let mortgages explained

Buy-to-let (BTL) mortgages are for landlords who want to buy property to rent it out. The rules around buy-to-let mortgages are similar to those around regular mortgages, but there are some key differences.  

When you buy a property as an investment, you won't be able to fund your purchase with a normal residential mortgage. Instead, you'll need a specialist buy-to-let mortgage.  The good news is that there are deals out there for first-time landlords, 'accidental' landlords and experienced investors with large portfolios.  The bad news, however, is that the rules around buy-to-let mortgages can be a bit of a minefield.  In this guide, you can learn the basics of how buy-to-let mortgages work and get to grips with how lenders will calculate your affordability.

You can get a buy-to-let mortgage under the following circumstances:

• you want to invest in houses or flats
• you can afford to take and understand the risks of investing in property
• you already own your own home, whether outright or with an outstanding mortgage
• you have a good credit record and aren’t stretched too much on your other borrowings, for example, credit cards
• you earn £25,000+ a year - if you earn less than this you might struggle to get a lender to approve your buy-to-let mortgage
• you’re under a certain age - lenders have upper age limits, typically between 70 or 75. This is the oldest you can be when the mortgage ends not when it starts. For example, if you’re 45 when you take out a 25-year mortgage it will finish when you’re 70.

How do buy-to-let mortgages work?

Buy-to-let mortgages are a lot like ordinary mortgages, but with some key differences.

• The fees tend to be higher.
• Interest rates on buy-to-let mortgages are usually higher, but this is where Twoow can help!.
• The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%).
• Some BTL mortgages are interest-only. This means you pay the interest each month, but not the capital amount. At the end of the mortgage term, you repay the original loan in full. BTL mortgages are also available on a repayment basis.
• Some BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions, for example, if you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent, or sibling). These are often referred to as consumer buy-to-let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.

Advising, arranging, lending, and administering BTL mortgages for consumers are covered under the same laws as residential mortgages and are regulated by the Financial Conduct Authority (FCA)

How much can you borrow for buy-to-let mortgages?

The maximum you can borrow is linked to the amount of rental income you expect to receive.
Lenders usually need the rental income to be 25–30% higher than your mortgage payment.
To find out what your rent might be, talk to local letting agents, or check rental listings online to find out how much similar properties are rented for.