Do I need a Buy to Let mortgage to rent out a property?
Yes (unless of course you're a cash buyer and don't need a mortgage at all). It's a special type of mortgage based on the fact that you will not be the permanent resident, and so is assessed differently to a normal mortgage. Unlike a residential mortgage, where how much you can borrow is based on your own income (among other things), a Buy to Let mortgage is assessed based on how much rent the property can generate.
What is the difference between a Buy to Let mortgage and a standard mortgage?
A Buy to Let mortgage differs from its residential counterpart in that it is largely assessed on the property's profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than on your own personal financial circumstances.
That said, many Buy to Let lenders will require you to have a minimum salary, typically £20,000 or £25,000.
Once approved, your Buy to Let mortgage enables you to rent out the property to tenants, whereas you cannot do this with a residential mortgage.
Other notable differences include:
Interest rates
It's common for the interest rates on Buy to Let mortgages to be higher than residential mortgage rates.
Deposit and property value
The minimum deposit you need to put down for a Buy to Let mortgage is higher than it is for a normal residential loan. Typically, you will be required to cover at least 20% of the property value yourself on a BTL mortgage.
Arrangement fees
Arrangement fees on a BTL mortgage can be higher than on a conventional mortgage. You may also come across more arrangement fees that are calculated as a percentage of the amount you're borrowing, rather than just a flat fee. It is also common for conveyancing costs to be slightly higher for a rental property.
Thinking about renting out your current home?
If you're moving home, you may be interested in keeping your current home and transforming into a property to let – a process sometimes referred to as Let to Buy.
If you decide to move out of the property you're currently living in and intend to rent it out, you'll need a Buy to Let. One option is to ask your current lender for their consent to let the property out, which might involve switching your mortgage to a Buy to Let rate – not all lenders will allow this. Alternatively, you can remortgage to a new lender on a Buy to Let deal. If you plan to stick with your current lender, you must inform them that you intend to let your home – failure to do so could mean a serious breach of contract.
If you need to release some equity from your current home to fund a new purchase, you can do so during the remortgage process – provided of course that you have sufficient equity and satisfy the lender's criteria.
Should you take responsibility to accommodate a tenant, you also need to ensure certain things are in place like landlords insurance – and you will inherit many more obligations as a landlord.
Can we help?
Are you thinking of buying your first Buy to Let property, or adding to your current portfolio? Do you already have a Buy to Let mortgage and are looking to switch to a better deal? Contact our expert advisers today.
Please note: although L&C is authorised and regulated by the Financial Conduct Authority (FCA), the FCA does not regulate most Buy to Let mortgages.
