You all know that your full-time job is not enough to make you meet both your ends. Even if you are self-employed, irregular cash inflows make it difficult for you to meet all your financial needs. While the economy is dynamic, and inflation is soaring, it is crucial to have a fixed source of income. No source can be better than having a rental property. Likely, you do not have money to invest. Don’t you worry as buy to let mortgages are out there to help you. Here Are Some Important Facets of Buy-To-Let Mortgages
What is a buy-to-let mortgage?
This mortgage allows you to borrow money for buying a property to rent further out. You can apply for these mortgages only when your purpose is renting it out. Whether you are a first-time buyer or you want to create an investment portfolio, you can apply in bad credit situation but good income needed.
This type of mortgage works differently than a standard one. Interest rates, repayment terms, eligibility criteria, and the size of the loan vary. You may also be required to pay higher deposits.
Whereas other mortgages are usually offered on a capital repayment basis, buy to let mortgages tend to be on either interest basis.
You can either opt to pay only the interest each month, and the principal is paid at the end of the mortgage term by selling the property
Opt for spending on the capital basis (your repayment goes towards both the principal and the interest).
These mortgages are easier to manage than their residential counterparts as the additional funds in the form of rent can be used to pay back your loan. The difficulty arises when your tenant is in arrears with rent payments or when your property is vacant.
What is the Eligibility criterion for a buy-to-let mortgage?
You must own your house outright, or you should have a mortgage on your existing home. It will help if you have a good credit score, though bad credit borrowers can also apply at the lenders that we suggest.
- The minimum age is 21-years.
- You should not be older than 75 when your mortgage ends.
- The minimum deposit size is 15% to 25%, depending on your credit rating and financial condition.
A standard mortgage is considered much cheaper because you submit only 5% of the value of your property as a deposit. If your credit history is perfect, your mortgage lender will be ready to approve an LTV of 95%. It means the maximum size of a regular mortgage can be 95%.
However, the deposit size for buy-to-let mortgages will vary from 15% to 25%. This implies that the maximum size of such loans will be 75% to 85%. Lenders ask for higher deposits due to the high risk involved. Your tenant is likely to vacate your property, and you may have to struggle to let your house.
Considering all these risk factors, lenders hesitate to increase the size of the mortgage. Shine Mortgages suggests you only those deals from reputed lenders that offer mortgages at competitive interest rates with the minimum deposit amount.
The interest rates are decided after considering the following factors:
- The rental income you are expecting by letting your house
- Your financial situation
- The type of mortgage you borrow
- The total amount you borrow
- Your credit history
What are the different types of buy-to-let mortgages?
Following are the types of buy-to-let mortgages:
- Fixed rate mortgages - A fixed-rate mortgage allows you to choose a deal with a fixed rate of interest for a specific time, for instance, two, three, five or ten years, depending on the policy of a lender. These mortgages are more manageable than others as you already know your instalment amount until the fixed interest period expires. After the end of the fixed term, you will switch to the standard variable rate (SVR). At Shine Mortgages, the experts guide thoroughly about when to switch to some better deal if SVR does not fit your budget.
- Discounted variable mortgages – It indicates that you will get a discount in your interest rate. For instance, if the SVR is 6% and your mortgage lender allows you to avail a 2% discount, the discounted variable mortgage rate will be 4%. Please note that with a change in the SVR, the interest rate will also change, but the discount rate will stay static. For example, if the SVR goes up to 7%, the discounted rate will also rise by 1%.
- Tracker mortgages - Your lender will track the Bank of England rates to set the interest rate at which you will pay off the loan. You will have no idea of your instalment amount because the interest rate will change as the rate of the Bank fluctuates. If the rates go up, you will pay a higher amount, and if the rates go down, you will pay a lower amount. With tracker mortgages, you may face difficulty managing your loan.
Can you get a buy-to-let mortgage with a bad credit history?
We understand that your low score is not always the result of payment defaults. You may have a poor score because of frequent changes in your address or very little to no credit history. Getting a buy-to-let mortgage is a bit arduous, but you can get an 85% LTV if you approach Shine Mortgages to buy and compare the right mortgage deal from reliable lenders.
Remember, late payments can call your creditworthiness into question, but a few irregular repayment defaults will not harm your chances to get a bad credit mortgage.
How to find the best deal?
Finding the right option is like finding a needle in a haystack. Below are some tips that can help you find the right deal:
- Research and compare rates, fees, terms, and the type of mortgage.
- Use an online mortgage calculator at Shine Mortgages to know the total cost of your mortgage.
- Think carefully which mortgage deal will work to your advantage.
Send your quote now on Buy-to-Let Mortgages and generate a long-term fixed source of income.
Buy-To-Let Mortgages – Regulated or Not?
Buy-to-let mortgages are not regulated, but as an exception to this, the consumer buy-to-let mortgages are available in which you rent the house to a close family member. These mortgages are regulated and are backed-up by strict lending rules. Whether it is about the lender or the borrower, both have to follow the decided criteria.
Pros and Cons of Buy-to-Let Mortgages
A buy-to-let mortgage is sometimes useful and sometimes not. You should know about both because such information helps people make better borrowing decisions. Here is the mention of the pros and cons of buy-to-let mortgages for your more in-depth insight into this borrowing option.
Small monthly instalments due to interest-only model.
Higher interest rates as compared to the residential mortgages
Buy-to-let properties mostly give profit, and thus managing the obligation is not a burden usually.
The industry is not regulated, which may leave the practices untamed.
Affordable mortgages due to dropped property prices that demand a smaller mortgage amount.
The deposit demand is high. Minimum can be 25%, and after covid-19 it can be bigger.
The biggest worry in the ‘Cons’ side is of the higher rates. However, an application with stable finances and correct documents can get smooth approval. Right estimation of the costs can help take even wiser borrowing decisions. Shine Mortgages supports you to take confident borrowing decisions through landlord income tax calculator. Compare multiple deals we choose for you from our panel that contains the best buy-to-let lenders of the industry with 90+ options.
Factors You Should Think About Before Getting Buy-To-Let Mortgages
No financial decision is easy if it includes the transaction of a significant amount. When it comes to investing in property, commercial lenders have many concerns that may affect the borrowing decision. They are same for you as well and before the final purchase of the house, have a look at several necessary factors.
Understand the scenario of the rental market to avoid risk
Property investors always play with the unpredictability of the market. Buy-to-let properties are usually profitable but not always. After the corona pandemic, it has become even more unpredictable. Before you buy a property, take the feel of the market and calculate the risk. You either will conclude immediate purchase or will prefer to wait a bit. Slow is safer!
Cost estimation is as important as comparison of buy-to-let mortgage rates
Maintenance cost is a recurring expense, and for such things, you cannot act carelessly. The property in your mind should surely come under the magnifying glass of maintenance part. The rationality that you apply while calculating the buy-to-let mortgage rates, should be equally applicable to your calculations of monthly costs.
Do not forget the tax part take help from stamp duty calculator
Always a matter of anxiety for most of the borrowers, tax clarifications are something that should get uncompromised attention. You know considerable changes have come after covid-19 on the tax part, which is an unprecedented chance for the buy-to-let industry. Now you cannot deduct the expenses from the rental earning to shrink the size of the tax bill. Do not forget the importance of stamp duty calculator; this tax always affects the overall cost. It is the prime feature of a bigger picture, necessary is to get deeper and gather more information.
Location is a significant concern and leaves a long-term impact
For a property investor, location is everything. The rental income earned on the house depends on the type of location. Current situations are even more uncertain post-pandemic as some areas are still prone to covid-19 virus. If you buy the property there, no tenant will want to shift there. Result? Massive loss. No mortgage approval can be given for a property with no income as rental capacity.
The above factors keep you focused on smart borrowing decisions. Stay away from all the mistakes that one can do due to the ignorance of some essential aspects.
How Much You Need To Earn To Get The Best Buy-to-Let Mortgage?
The safest earning limit to get a buy-to-let mortgage is £25000 per year. Less than this is also acceptable if you compensate the gap with a reasonable deposit amount. However, it is also not true that in the absence of both the factors, you cannot take the mortgage. Mortgage companies are there that can consider your application but do not forget that they are not ready to compromise on their conditions after a limit.
Shine Mortgages can arrange the lenders conveniently that match your financial conditions. They need to keep a balance between their lending capacity and the risk capability on a borrower. To win the best buy to let mortgage deal, it is better to earn the minimum limit. The application process becomes easy in those circumstances.
- Specialist BTL knowledge
- quality of service
- senior lever underwriting service
- Wide range of products
How Much Can You Borrow?
We understand the anxiety of the borrowers, and before you understand how much can I borrow, we are right here with the right answer. In the case of the buy-to-let properties, the rental value of the building decides the loan amount you can get. Important is to know the minimum limit criterion on this aspect. The lenders mostly demand that the property rental income should be 125% of the monthly interest payment. In some cases, this limit may extend up to 135% to 145%. Most of the buy-to-let deals are interest-only mortgages. In simple words, higher is the rental capacity; bigger is the mortgage amount.
Government Loan as the Buy-to-Let Mortgage Deposit – Acceptable or Not?
No, to be rational, it is not acceptable. After corona, the government has spread its help to businesspersons through various schemes. Coronavirus Business Loan Scheme (CIBILS) and Bounce Back Loan Scheme (BBLS) are the two schemes with the same aim. Many borrowers ask us if they can use the money obtained through these loans as the buy-to-let mortgage deposit. But lenders usually do not accept any deposit through a loan. Even before corona, such queries were common. People thought that borrowing any business loan can back their down payment need. Advisable is you avoid any such action before it proves a big mistake later.
Current Conditions Of Desktop Valuations
Nowadays, most of the lenders do not want to keep the choice of online or desktop valuations because the conditions are much better now. The site visit is in more preference. Online valuations are more applicable in the case of standard and similar properties, but the buildings and houses with different designs never get through the virtual valuation. If you are buying a set of houses, keep this point in mind.
One crucial fact about desktop valuations is – lenders allow such scrutiny only for those applicants who are strong in their finances and repaying capacity. Also, the location and property type affect the final decision of the mortgage provider on the significance of automatic valuation.
Buy-To-Let Hotspots And Worst Places in the UK in 2020
With quite a bumpy experience, the year 2020 is moving on to get back the regular days. The property market which went under a big shock is also determined to revive and stand up again for a new start. Some areas give a good return, and some have a pathetic performance on this part. Here are the best and worst buy-to-let places in the UK in 2020 –
|Best buy-to-let places in the UK||Worst Buy-to-let places in the UK|
Liverpool (North west)
Kensington and Chelsea (London)
Bradford (North west)
Hereford (West Midlands)
Middlesbrough (North East)
Chiltern (South East)
Sunderland (North East)
Horsham (South East)
Manchester (North West)
Wokingham (South East)
Chiltern (South East)
City of London (London)
Before you make a final decision on the property purchase, read the above list. It can help you a lot in the struggle to play safe.
Mistakes Buy-to-Let Mortgage Applicants Make
Mistakes always make things difficult. Their size does not matter because if they leave a considerable impact, they are as powerful as the big ones. Here are some of the mistakes big and the small ones that may make you fail as a property investor. Timely attention to them is necessary to prevent big chaos later and avoid rejection on the mortgage application.
Not taking care of business stability before applying for btl mortgage
While you are busy in buying new properties and applying for a mortgage, your business part should not remain neglected. The monthly and yearly earning capacity should not reduce. Maybe you have invested so much in the deposit part of the properties that the necessary electricity and other bills have to compromise. Also, other business debts may face the same negligence.
As a result, your financial records start showing the spots of delayed and missed payments, no need to mention they soon appear in the credit reports and then you what happens. Yes! The lenders get into the doubt on repaying capacity and threat of failure as a btl mortgage applicant gets bigger. Understand the responsibility of both the parts and maintain the required balance on both the parts.
Not choosing the right insurance cover can delay the process
Every mortgage lender needs to see your property insurance that covers varied issues that cause related to property. Mostly the insurance is necessary for two types of requirements content insurance and liability insurance.
Content insurance covers the things that you already have in the house when the tenants move in such as bed/curtain/carpet etc. Liability insurance covers other purposes; if a tenant gets injured or dies in the building, this insurance covers the related liabilities. Content insurance is not required in most of the areas, but if the students occupy a property, this insurance is necessary. If you have not taken that or have not chosen content insurance too, the buy-to-let mortgage lenders may act reluctant on the mortgage application.
Application without patient buy-to-let mortgage comparison
Usually, the haste to get funds and buy a property makes you irrational about the importance of comparison of mortgage deals. Whichever option sounds even a bit suitable to you, becomes the final choice. Maybe the rates are high, but what about the deposit? Is that bearable too? May the repayments are flexible, but there will be hefty early repayment charges if you plan someday to pay off or remortgage.
Stop for a while, think of the consequences of a wrong selection and choose the wise way of buy to let mortgage comparison. Never make a biased choice, which is based on the limit knowledge of the market. Every lender shouts about the big promises and commits to offer an amazing deal. But, that is certainly not the right approach. Let the multiple available options expose their varied features. We can reveal all the relatable deals with rational conclusions through advanced financial tools such as buy to let mortgage repayment calculator. Give yourself some time, and things are sure to be perfect.
Make sure you do not make above-mentioned mistakes and act sensibly because knowledge of the right and wrong keep the threats away. The best way to avoid a mistake is to understand and accept the fact that you can make mistakes.
Shine Mortgages like always is there to assist with its sundry mortgage lenders that offer customized deals. First get unbiased, free advice and then choose the mortgage company from our panel. We are here to make circumstances and mortgage procedures less stressful and clear the bigger picture to help make smart and safe property investments.
BEST BUY-TO-LET MORTGAGE FAQs
How much do you need to earn for a buy–to-let mortgage?
There can be no precise amount for that however; £10,000 is the basic requirement. This is because the deposit size in such mortgages is big that goes up to 35% in maximum. Main game runs on the income-outgoing ratio that is 60:40 or better is 70:30. Buy-to-let mortgage is majorly obtained on the value of the property that is purchased primarily for the investment purpose. The lenders check the repayment capacity to pay the instalments and the applicant depends on the rental income for that.
Is it illegal to rent a house without a buy to let mortgage?
No, it is certainly not illegal to rent out the property. The buy-to-let mortgage is just a type of financial assistance that the applicant may or may not obtain. It has nothing to do with the right of the property owner to put the building/home on rent.