Buy To Let Mortgages

Buying to let is not the same as purchasing a home for yourself! Let us help.

The Financial Conduct Authority does not regulate some forms of Buy to Lets.

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What are buy to let mortgages?

Buy to let mortgages are used by an individual to purchase a home that they will own, but not live in. Instead, they will rent it out to other people, and collect an income from the rent.

Who are buy to let mortgages for?

Buy to let mortgages are for people who want to become landlords, but do not have the capital to buy a property outright. Instead, they put down a deposit and get the rest of the money in the form of a buy to let mortgage, which they will pay back with rental income.

How much can I borrow?

The amount will depend on various factors, and we can help to come up with the evidence. One factor will be how much rent you are able to collect. The higher the rent, the bigger the loan you will be able to find.

Most mortgage lenders ask that the rental income amounts to 125% (sometimes 140% or higher) the cost of the mortgage repayment. There can be an added risk with this type of agreement (as opposed to a traditional residential mortgage) because there are no guarantees that the property will always have tenants. As such, homes in areas where there is a steady demand for rental homes will always be a safer bet.

How many buy to let mortgages can someone have?

Most people who want to become landlords do not just want to own one property. Many lenders allow their customers to have between three to five mortgages with them and unlimited with other lenders, or they may set a total amount (say, one million pounds). If you are thinking about adding another property to your portfolio, then speak to us and we will investigate your options for you. 

Are there any conditions?

Yes, there are, there are two big things to keep in mind if you are going down this route. The first is that the property you buy must be ready to live in as soon as you own the keys. It is not possible to get a buy to let mortgage on a “fixer-upper.” Some mortgage lenders also set an upper age for applicants. If you want to look at a “fixer-upper” there are other options available to you, call us and we will investigate all of them for you. If you want to buy a “fixer-upper” there will be other options for you, talk to us and we’ll advise you on them.

How can I get the best rate?

That is where the Financial Detectives come in! With access to the whole UK market, we will help you to get the best buy-to-let mortgage rates. If you can show there is demand for rental properties, and that you will be able to charge more than the amount of your repayments (as with most things mortgage-related, the more, the better) and if you have a deposit that is in the 20-25% range, we are more likely to uncover a better deal. As with all mortgage applications, your individual financial situation and background will be crucial.

Why use The Financial Detectives if you're buying to let?

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What are let to buy mortgages?

Let to buy mortgages allow existing homeowners to raise money to buy another property before they’ve sold their first property.

Who are let to buy mortgages for?

There are many cases when a homeowner may want to move to a new house, while still owning their first. For example, a couple may decide to move into a house together, yet one of the pair already has a house. Rather than go through the process of selling the first house and buying somewhere new, the first house is rented out. The new home may be purchased with a let-to-buy mortgage on the first property.

What is the difference between let to buy and buy to let?

Let to buy and buy to let mortgages sound similar, and in fact, are similar — but there is a fundamental difference. Buy to let mortgages are for people who want to buy a house and then make it available to rent. With let to buy, the person already owns the home they are going to rent out. They will use the mortgage loan to buy another property, where they will live.

What do you need for a let to buy mortgage?

All mortgages are subject to requirements and let to buy mortgages are no different. In order to meet the criteria, a person must be aged between twenty-five and seventy-five, have a deposit of around 20%, and have a strong financial standing, though different lenders have different rules.

What are the advantages?

There are many benefits of a let to buy mortgage. It provides more options for the and is useful if a homeowner wants to move but is struggling to find a buyer for their existing property. It can also release equity that is tied up in the home, as well as generate future income. The rent from the first home can cover the costs of the mortgage for the second, and although it is not the most important part of the whole thing, many people just like to experience the opportunity of becoming a landlord.

How do I find the best rates?

The Financial Detectives can find you the best let to buy mortgage rates. The rate that will you pay will relate to the level of risk; if the property is in an area where demand outweighs supply, and it can get a high rental income, the property owner will get a better rate. also, things like the applicant’s personal financial history, background, employment, etc will also form part of the rate calculations.

Though they’re slightly more complicated than traditional mortgages, in the right circumstances this type of mortgage can be a perfect solution for people who want to move or want to own two properties. Thanks to let to buy mortgage lenders, homeowners do not need to wait for someone else to buy their home before moving up the property ladder.

What is an HMO mortgage?

An HMO mortgage is a loan used to buy a ‘House of Multiple Occupation’ (HMO) property. They differ from traditional mortgages because the property that is being bought is not to be used for personal use. An HMO is a property with multiple bedrooms that is shared by non-traditional groups, such as students, or any other group that does not constitute a traditional ‘household.’ It is also commonly called a ‘house share.’ The HMO mortgage will be used to purchase the property, which will then be rented to others.

What factors affect HMO mortgages?

There are many factors that determine the mortgage rate an applicant will receive. In some cases, a mortgage will only be granted if the applicant has an HMO license, which is a legal requirement if the property is large – for example, it’s to be rented out to five or more people. 

Even if a license isn’t required, some HMO mortgage lenders require the mortgage holder to have previous landlord experience. There may also be some more general property restrictions that make a property unsuitable for this type of mortgage, too, such as homes with multiple kitchens, or more than ten bedrooms. 

Another factor that’ll influence the cost of the mortgage will be the location of the property. If it’s in an area where there’s a constant demand for this type of housing, such as cities with a large student population, then the applicant will be eligible for the better rates, as it’ll be less of a risk.

Are HMO mortgages difficult to get?

Aside from some of the limitations that we’ve outlined above, HMO mortgages are not especially difficult to get, though the process can be slightly more difficult than regular mortgages. Providing that you have the right financial background, have built up some money to use as a deposit, and can show that you’ll be able to rent out the property, then there’s no reason why a HMO mortgage would be denied.

As part of the application process, lenders will assess the applicant’s age, income, and credit history. Before applying, you may wish to speak with your local council, to check that there are no other legal requirements that you need to follow.

Who can apply for an HMO mortgage?

In most cases, HMO mortgage lenders will ask that their applicant’s already own at least one other property and be a resident of the UK. It is generally preferred that the applicant be the one who’s going to manage the property (as opposed to a third-party organisation).

What are the advantages of HMO mortgages?

There are plenty of advantages to getting a HMO mortgage, the biggest being that it offers a tremendous opportunity to boost your portfolio and potentially get a handsome return on your investment. With the housing market becoming ever more complex and unaffordable for many, there has been a rise in people who are choosing to live in a house share, rather than their own home. As you will be receiving rent from multiple people, this method also spreads the risk, too.

What is a limited company mortgage?

Buy to let mortgages for limited companies are an increasingly popular solution for property investors, primarily due to the tax implications. However, getting a limited company mortgage can be more than a little confusing, especially for a new investor. Let the Financial Detectives lead you through an overview of what you need to know about the processes involved. We always recommend you speak with an Accountant to determine if buying a buy to let is better for you to buy through a Limited Company or in your personal name.

How do buy to let business mortgages compare to standard business mortgages?

When taking out a mortgage under the limited company, there are two main options. A standard business mortgage where you are buying the property for the purposes of your company (for example, a store or a warehouse) or a buy to let where you plan to make money from the property through being a landlord or developer, known as an SPV . As far as limited company mortgage applications are concerned, the main difference is that the former relies on the performance of a business. So, lenders will want to see balance sheets, projections, and other financial accounts. When the business exists with the sole purpose of making money from properties, lenders prefer to look at the individual directors.

How do lenders determine an SPV's ability to make payments?

Given that the SPV business relies solely on the properties for financial earnings, lenders will need to check that directors have the means to meet the repayment terms. In many ways, then, it is like taking out a personal mortgage, although the arrangement fees will be higher. So, you will need to prove your income, credit score, and other relevant finances in the same way as a personal mortgage. 

Another issues to consider revolves around the deposit. A larger down payment naturally gives you greater strength when entering the market as well as dealing with lenders due to the LTV ratios. If you own another company, an inter-company loan is the best way to get those funds into your account. However, alternative ways are available.

Can my new business get a limited company mortgage?

In theory, yes. There is nothing to stop you from starting a company today and taking out a limited company buy to let mortgage right away. You are essentially taking out a mortgage in the same way that you would complete a personal mortgage, only there will be more complex paperwork to complete.

This can delay the process a little as the lender will want to check your full financial background while also completing the relevant business documents. However, the company itself is not particularly relevant as far as the application is concerned. So, you do not need to supply financial backgrounds for the business itself – unless the loan is for direct business premises.

What happens if my company fails?

Lenders won’t hand out limited company mortgages for the sake of it and will use strict regulations to protect their finances. Businesses can fail, which is why lenders will get directors to provide financial guarantees to confirm that they will personally pay the money back should the venture crash and burn – this is irrespective of whether the business is an SPV or not.

Essentially, then, the burden of the mortgage is on your shoulders. The only real difference from taking out the personal mortgage is that this route can provide a better tax situation. Before taking out your first limited company mortgage, though, it is worth speaking to the Financial Detectives about the “small print”.