What is a buy to let mortgage?
Put simply, a buy to let mortgage - or BTL mortgage - lets you borrow money to buy a house that you're going to rent out rather than live in. It's sometimes known as a landlord mortgage and allows you to let your property to tenants, students or as a holiday home.
Residential mortgage and buy to let mortgage comparison
A buy to let mortgage or a mortgage for rental property is different from a residential mortgage that you'd take out for a home you're going to live in. The tax treatment is different too because lenders and the government see being a landlord like running a business.
A key difference is that while residential mortgages look at how much you earn when deciding how much to lend to you, a buy-to-let mortgage looks at how much you’ll be able to rent the property out for when making that decision.
How to choose a buy to let mortgage
There's a lot of choice in the buy to let mortgage market. The deal you get and the buy to let mortgage rates you are offered will depend on how much deposit you've saved up, and how much you want to borrow. So if you want to buy to let, it's a good idea to start saving up for a deposit so you can get the best buy to let mortgage rates.
If you're looking for the best buy to let mortgage, don't just go for the headline rate. Check carefully to see whether you'll have to pay a fee to take the mortgage out. You'll probably need to remortgage in a few years, so check what charges are involved if you switch your buy to let mortgage or providers.
The cheapest buy to let deals will give you a low interest rate and low fees for taking the mortgage out - or they might even be fee-free. Plus, there'll be a low early repayment charge when you remortgage.
How to compare buy to let mortgages
If you want a buy to let mortgage, it’s worthwhile carrying out a buy to let mortgage comparison. This allows you to compare deals to find the best bet to let mortgage rates. You can compare buy to let mortgages using our comparison table above.
When you're looking at the buy to let mortgage comparison table, you'll see that each lender has a different buy to let mortgage criteria.
One of the key things to look out for in buy to let mortgages is the maximum loan-to-value (LTV) rate. The LTV is the difference between the value of the property, and how much deposit you've saved up. If a lender says the maximum LTV they'll accept is 75%, that means you'll need a deposit of at least 25% of the property's value.
Find the best buy to let mortgage rates
Even the lowest buy to let mortgage rates tend to have higher interest rates than normal residential mortgages.
That's because there's more risk to the lender that you won't be able to make your mortgage repayments. This could happen if you can't find suitable tenants, the property's empty for longer than you planned, or your tenants stop paying rent. Because of this, buy to let mortgage rates aren't usually as good as residential mortgage deals.
Buy to let mortgages interest rates and fees for taking the mortgage out are often higher than residential mortgages. They usually need a higher deposit too - at least 25% of the property's value.
To get the best buy to let mortgage rates, you'll often need an even bigger deposit. This can be around 40%, meaning they have an LTV of 60%. So your buy to let deposit is very important and it's best to save up as much as you can to get the best buy to let mortgage deals.
Here's how buy to let mortgages work and how much they cost.
Where to find the best buy to let mortgage
The best buy to let mortgage is one that's right for your own personal circumstances. It should also give competitive BTL mortgage rates, have a low or no arrangement fee, and be flexible enough to let you switch at a later date.
If you're thinking of purchasing a buy to let property, you can compare buy to let mortgage deals with our comparison tables to find some of the best BTL mortgage rates.
Each lender in the buy to let mortgage comparison table is shown with:
The maximum buy to let mortgage LTV they'll accept
The initial rate that's on offer and the period it covers (for example, five years)
The lender's Standard Variable Rate (SVR) which is the interest rate you'll pay once the initial or fixed period ends
The Annual Percentage Rate of Change (APRC). This shows what your total mortgage costs would be, as a percentage, if you keep the mortgage for its full term.
By comparing your options, you'll be able to find the cheapest buy to let mortgage deals overall and obtain a buy to let mortgage quote.
Buy to let mortgage deposit: How much do I need?
When you're searching for the best buy to let mortgage, the lender will look at the size of the buy to let mortgage deposit you've saved up.
This is another area where buy to let mortgages differ from normal mortgages. When you're buying your own home to live in, lenders accept a much higher LTV rate. This could be as high as 95%. But the situation for buy to let LTV is different.
Most buy to let mortgages require a buy to let deposit of at least 25%, making the maximum LTV much lower at 75%. However, if you want to access the best buy to let mortgage rates, aim for a higher deposit than 25%.
What other differences are there between buy to let mortgages and residential mortgages?
A buy to let mortgage deposit needs to be much larger than a residential one. But there are other differences between BTL mortgages and residential mortgages.
Most residential mortgages are repayment mortgages. That means you pay off some of the loan and some interest each month. But it's rare to get a buy to let repayment mortgage. Most of the time, you will simply pay the buy to let mortgage interest each month. This is known as a buy to let interest only mortgage.
An interest only buy to let mortgage means you'll need to have a plan for how you'll pay off the outstanding amount of the loan at the end of the mortgage term
How much does buy to let cost
It can be more expensive to buy a rental property than a home to live in. You'll need to factor this into your overall buy to let costs. It's important to find the best BTL mortgage you can.
Buy to let mortgage rates and arrangement fees are normally higher, and you'll also have to pay more stamp duty. Stamp duty is a tax you pay when you buy a property. You'll also have to pay the normal costs of conveyancing, including solicitors and surveyor's fees.
Your lender will expect your rental payments to cover the interest on your buy to rent mortgage - and more. Bear this in mind when you do your initial buy to let mortgage calculations.
Learn more about the costs of buy to let mortgages.
Other buy to let costs
When you're working out the costs of a buy to let mortgage, as well as buy to let rates and fees, you'll also need to factor in:
Any charges your letting agent will make
Necessary repairs, renovations and inspections
Regular testing of gas and electrical equipment to make sure it's safe
Whether you plan to let the property furnished or unfurnished.
Buy to let tax and stamp duty
The way landlords are taxed has changed a lot in recent years. New taxes on buy to let landlords are being phased in.
Before, you could offset your mortgage interest costs and other costs against the buy to let rental income you received. But you can't do this anymore.
Stamp duty rates on buy to let properties are also higher than on residential property purchases these days. When you purchase a buy to let property that's worth over £40,000, you have to pay stamp duty. It costs 3% more than the stamp duty on residential properties.
Learn more about stamp duty and tax on buy to let properties.
Buy to let insurance
Landlord insurance is different from normal home insurance. It isn't legally required, but your lender might ask you to take it out as a condition of your buy to let mortgage.
Buy to let insurance can protect you in a range of scenarios. This could include damage to buildings or contents, being taken to court by your tenants, or being unable to rent your property out for a period.
Here's how to get insurance for landlords to cover the risks of your buy to let property.
Buy to let remortgages
If you have a buy to let property, you'll need to arrange a buy to let remortgage when your current deal ends. It's unlikely that you'll want to stay on the lender's SVR, which is what your buy to let mortgage would automatically default to at the end of your term. That's because it's usually much more expensive than the competitive buy to let rates available if you remortgage.
Use our buy to let remortgage comparison table to find a mortgage that's right for you.
When you're thinking about getting a BTL property to rent out, you'll need to make sure the rent income covers the cost of your mortgage payments. It should also cover the expense of running and maintaining the property.
Some landlords make money from the rent they charge. Others benefit from the appreciation in the value of the property itself. And some benefit from both.
How investing in property with buy to let works.
Can I have more than one buy to let mortgage?
You can get more than one BTL mortgage but you can’t take out one mortgage that covers all your BTL properties. Buy to let mortgage lenders offer portfolio mortgages.
What are portfolio buy to let mortgages?
A portfolio landlord is normally classed by lenders as a borrower with four or more mortgaged buy to let properties This can include holiday lets, properties owned through a limited company, 'consent to let' properties and all BTL mortgages owned solely or jointly with someone else. Specialist lenders tend to offer these types of mortgages and anyone wanting to apply for one will need a few years experience as a landlord to qualify.
