Buy to let mortgages are very different to normal residential loans. The term ‘buy to let’ refers to buying a property to let out to tenants. The main aim of buying property to rent out is to make a commercial profit, whether this is from the rental or the growth in value of the property. Consequently mortgages taken for this purpose are treated as commercial borrowing by lenders and the Financial Conduct Authority, and so the FCA only regulates very few of them as you are deemed to be in business, whereas the FCA looks to protect ordinary consumers. This means that many buy to let borrowers are not afforded the same protection from poor advice that normal residential loans receive.
The buy to let mortgages which do come under FCA regulation are those where more than 40% of the property is used or will be used by the borrower or a member of the borrower’s immediate family.
- The lending criteria applied by lenders is also very different. These are some common features of buy to let loans: The maximum loan is not linked to the borrower’s personal income, which is sometimes disregarded altogether. However many lenders require the borrower to have a minimum annual income of around £20,000-£25,000 so that they can afford temporary periods without a paying tenant. The potential monthly rental is important and can restrict the maximum mortgage available, as this must be around 125% of the monthly mortgage interest payment on any given loan size
- Maximum loans are around 75% – 80% of the property value
- Set up and arrangement fees tend to be higher than for residential loans
- There are fewer lenders offering buy to let mortgages than for other types
- Loans can be arranged on an interest-only basis, with no requirement to show how the loan will eventually be repaid – which is definitely no longer the case with residential loans
- It is often possible to have a portfolio of properties with just one mortgage lender
- Some schemes offer high flexibility – allowing you to pay off lump sums, underpay and take temporary payment holidays – which can be useful if you suffer temporary periods when you cannot get a tenant
- Lenders are comfortable with loans to older borrowers, whereas residential mortgage lenders generally like the loans to be repaid by retirement
Whether you are buying just one property to rent or have a portfolio to manage, it is wise to have current buy to let mortgages explained by a competent and experienced adviser such as Andy Wilson. There have been recent changes in lending criteria, and Andy will have an up to date knowledge of the schemes available.
Please use the ‘Contact Andy’ form below to request more information.