Buy-to-let mortgages:

Everything you need to know

Buy-to-let mortgages are different to ordinary mortgages. We explain everything you need to know, from what they are, through to how OneDome can help you apply for one.

What are buy-to-let mortgages?

Buy-to-let mortgages are designed primarily for people buying a property to rent out. They aren’t the same as ‘ordinary’ mortgages however, making learning the differences an important step before applying for one.

Essentially, you will not be able to finance the purchase of a rental property with an ordinary (residential) mortgage.

Differences between buy-to-let mortgages and ordinary mortgages

Perhaps the most obvious difference between buy-to-let mortgages and ordinary mortgages is the preference for interest-rate loans. An interest-rate mortgage is where you only make repayments on the interest rate of the loan. You will still have to pay the capital debt (the money you have borrowed), which will not go down during the mortgage term.

Subsequently, you usually pay off the capital debt at the end of the mortgage term by selling your rental property. The other option is to keep the property and cover the interest-rate mortgage by taking out another mortgage.

Deposits

It is important to remember that buy-to-let mortgages require higher deposits than ordinary mortgages. You’ll also face increased fees and pay a higher overall rate of interest. Also, stamp duty is more expensive on any properties that are not your main home.

Why do buy-to-let mortgages cost more than ordinary mortgages?

It’s no secret that lenders view buy-to-let mortgages as higher risk options. This is because there is a greater chance for things to go wrong in a buy-to-let deal; missed rent, unruly tenants, or even no tenants at all. Consequently, lenders will hike up their interest rates to reflect the increased possibility of mortgage repayments not being made.

On the other hand, because you generally end up on an interest-only deal, your monthly payments will still be lower than those of ordinary mortgages.

Buy-to-let mortgage deposits

As mentioned earlier, a deposit for a buy-to-let mortgages is higher, so you will need to make sure you have the money to pay it. Generally these deposits start at around 25%, but larger mortgages can demand a deposit of up to 40%.

Paying a larger deposit usually means that your monthly costs are lower, but of course it comes with the initial downside of a higher upfront cost. Because of this, we recommend speaking to a mortgage advisor and talking with them about which option works best for your situation.

Who can apply for a buy-to-let mortgage?

The riskier nature of buy-to-let mortgage means that lenders are pickier about who they lend to. Getting a buy-to-let mortgage requires the following situations:

      • You earn at least £25,000 per year
      • You’re credit score is favourable
      • You don’t have outstanding debts
      • You’re too old to reliably guarantee mortgage repayments
      • You want to purchase homes to rent
      • You’re able to manage the risks of investing in property

      • You already own property and want to invest

    Just to quickly expand on the point about being too old, most lenders would be reluctant to offer a 25-year mortgage to someone who was 70 years old, for example. It is an unfortunate situation; however lenders need to be realistic in order to avoid significant risk.

    What fees are involved in a buy-to-let mortgage?

    It isn’t just the mortgage you need to repay, other factors such as rental income tax need to be considered. Other fees include landlord’s insurance, rent insurance, and letting agent fees (if you choose to use them).

    Maintenance and repair costs have the potential to seriously chip at your fees as well, so always keep that in the back of your mind. If you’re new to renting property, be sure to check the updated landlord regulations and responsibilities.

    Things to consider

    Getting a buy-to-let mortgage requires a decent amount of planning on your part. First and foremost, prepare for times where you’re not renting your property out. If you can’t afford to cover the mortgage repayments when tenants aren’t renting, you might want to reconsider joining the letting market.

    Adequately preparing for rental ‘voids’, as they’re known, is an essential part of owning rental property. For instance, we recommend setting up a financial safety net for those leaner times, one that you can turn to when you need to make a mortgage payment. Moreover, you need to think about covering non-avoidable outlays such as property repairs; faulty boilers, clogged drains, etc.

    Have a backup plan if house prices fall

    Because you usually repay a buy-to-let mortgage by selling the property at the end of the term, it is crucial you prepare for a dip in house prices. This is down to the fact that you might not be able to repay the mortgage if your property sells for considerably less than you’d hoped. As a result, you’ll be left covering the difference on the mortgage and maybe even losing money overall.

Can OneDome help me get a buy-to-let mortgage?

If you’re looking to get a buy-to-let mortgage, then our tool, the Mortgage Passport, is an excellent way to get started. By simply filling in a few details you can get an accurate quote of what you can afford in minutes. As well as this, you can pre-qualify for a Mortgage in Principle and use the Mortgage Passport to show sellers that you’re in a genuine position to buy. Stand out from other buyers with OneDome’s Mortgage Passport.

Key benefits of Mortgage Passport:

  • Compare 90+ mortgage lenders to make sure you get the rate that is right for you
  • Expert mortgage support available whenever you need it
  • Standing out from other buyers is easy with the Mortgage Passport
  • Find out how much you can borrow five minutes
  • Personalised offers designed to meet your unique requirements

The smart way to find a mortgage

If you’d prefer to talk to a mortgage advisor directly, you can call 0203 8686 262 between 09:00 and 17:00

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Your home may be repossessed if you do not keep up repayments on your mortgage.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
OneDome is a trading name of OneDome Financial Services Ltd which is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority.
OneDome Financial Services Ltd. Registered office 5th Floor, Dean Bradley House, 52 Horseferry Road, London, United Kingdom, SW1P 2AF. Registered in England Number: 11497590