How Do Buy to Let Mortgages Work?
First, let’s start with an explanation ….
What is a buy to let mortgage?
A buy to let mortgage is a mortgage for people looking to buy a property to rent out to tenants rather than to live in. You can get a buy to let mortgage on a house for sell that you intend to rent out and or a flat to sell that you think would make a good rental investment.
What you should know about Buy to Let Mortgages
Buy to let mortgages are typically interest only. This means the monthly repayments only cover the interest charges on the mortgage, the repayments do not reduce the original loan amount. The property must be self-financing which means income generated from the property has to cover the mortgage repayments.
Generally, for a buy to let mortgage the mortgage lenders require a 20-25% deposit of the value of the property being purchased. As with traditional mortgages the bigger the deposit the better the mortgage deal you can normally secure.
Gaffsy says … a buy-to let property is typically a long-term investment that will go up in value over time. For a buy to let mortgage to work the rental income covers the monthly interest payments and value of the property increases. If you are a landlord with a buy to let house to sell contact us today for a fee free, unconditional free cash offer.
Getting Accepted for a Buy to Let Mortgage
The criteria for a buy to let mortgages varies across lenders, some require you to be a UK resident, own a property already, have minimum borrowing requirements as well minimum and maximum ages of borrowers. They will carry out financial checks as well as stress tests to insure you can make the repayments.
It is always a good idea to seek professional advice and/or use a mortgage broker for further guidance.
Are you eligible for a Buy-to-Let mortgage?
See below for the Halifax eligibility criteria:
- You are at least 21 years old;
- You will not be over 80 years old at the end of your mortgage term;
- If you are a first time buyer, you are not applying in your name only;
- At least one applicant is a current UK property owner (this can be a main residence or another buy to let property);
- You have at least 25% of the price of the property as a deposit;
- The property is being used for rental purposes, and is self-funding (the rent needs to be higher than the mortgage payment);
- The property is in good condition and not divided into separate units; and has a Minimum Energy Performance Certificate Rating ‘E’ or above, unless it is exempt from the regulation.
- The value of the property is £50,000 or more.
- You do not have more than 10 buy-to-let mortgaged properties in total with any lender (including this application)
Do you pass the affordability checks for a Buy-to-Let mortgage?
These rules are designed to ensure that landlords can afford to repay the mortgage and that the loan is suitable for the landlord's circumstances. The key affordability rules include:
- Rental income: The annual rental income from the property must be sufficient to cover a certain percentage of the interest only mortgage payments, typically around 125% based on the higher of a notional interest rate or the initial rate +2% for the mortgage deal. However, “Which” notes some lenders impose higher levels of around 145%.
- Debt-to-income ratio: Lenders must consider the landlord's overall debt-to-income ratio, which is the total amount of debt the landlord has compared to their income.
- Income verification: Lenders must verify the landlord's income, typically through tax returns, bank statements as proof of earnings to ensure that they can afford the mortgage payments. Plus a copy of lease agreements if you own other rental properties that provide an income
- Rental Income projection: You will need to supply a rental income forecast from an ARLA-regulated letting agent.
- Credit score: Landlords must have a good credit score, as lenders will consider this when assessing the landlord's ability to repay the mortgage.
Gaffsy says … it’s important to keep in mind that these rules and criteria differ across lenders and change over time. Carefully consider the terms of the mortgages on offer and always check with lenders for the most up-to-date information on buy-to-let affordability rules and eligibility criteria.
What is an Accidental Landlord?
An accidental landlord is a person who becomes a landlord unintentionally, often as a result of circumstances such as inheriting a property, being unable to sell a property, or moving in with a partner and renting out their previous home. It's important to understand the responsibilities and regulations that come with being a landlord, including the need to comply with housing and safety regulations, collect rent, and handle maintenance and repairs.
Are you an accidental landlord?
If you answer yes to this question then there are a number of things you must consider and implement.
- Notify your mortgage lender: If you have a standard mortgage on the property then you need to notify the mortgage lender as this may impact your mortgage and you may need to switch to a buy to let mortgage.
- Understand your tax implications: You will pay income tax on the rental income you receive regardless of what tax band you fall in you can only claim mortgage relief at a rate of 20%. So, if you the landlord are in the higher tax band you will pay 40 or 45% on the rental income and only back 20% as tax relief.
- Review your insurance coverage: You will have to take out landlord insurance to protect your as standard home insurance is not good enough.
- Check your legal obligations: You have legal obligations to check the tenants have a right to rent in this country. Note that the tenancy deposit must be kept in a government backed tenancy deposit scheme. Draft a written lease agreement
- Safety check: You will be responsible for making sure the property is safe for you tenants and that all the necessary checks have been carried out and safety regulations have been met.
- EPC rating: Your property it must have a minimum EPC rating of E unless you qualify for certain exemptions
- Licensing: You may have to purchase a selective license, check out our guide what you need for a selective licence
Gaffsy says .. keep in mind that being a landlord comes with various responsibilities and legal obligations, so it's recommended to seek advice from a professional and familiarize yourself with the laws and regulations that apply to landlords in your area.
A Stress-Free Solution for Landlords Looking to Exit the Market
If you have become an accidental landlord and are looking to sell your property, Gaffsy as a cash house buyer is a good option. By selling your property to Gaffsy, you can avoid the hassle and uncertainty of the traditional selling process as we can offer a quick, straightforward, no hidden fee solution to selling your property. We will make you free cash offer today.
Gaffsy, can be especially appealing if you are looking to sell quickly or if you are a landlord looking to exit the rental market. We buy any house for cash no matter the conditions and will provide you with a quick no-obligation cash offer within 60 minutes and we even pay your legal fees. What are you waiting for contact us today to discover how we can buy your house for cash now.
Also check out our guide is buy to let still worth it for landlords and investors? If you have found your rental property is no longer yielding an attractive enough return and you are thinking I want to sell my rental flat, sell my rental house, sell my rental portfolio no matter the condition can get a cash offer from Gaffsy today just enter your postcode.