How it works

Key differences of buy-to-let mortgages

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Deposits

Whilst for residential mortgages it is possible to pay as little as a 5% deposit, due to the greater perceived risk to the lenders of a buy-to-let mortgage they like you to have a larger personal stake in a property. This gives the lenders the added peace of mind that they have more chance of recovering their debt should they have to repossess the property, and so a 15-25% deposit is normally required.

Underwriting

The rental income generated by the property will be taken in to consideration and will determine the amount of money that a lender is prepared to offer you. Typically, the rent needs to cover between 125% and 145% of the monthly mortgage payment (depending on your tax status) and this is usually calculated on a notional interest rate of 5.5%. However, there are a number of variations on this and it is important to discuss your requirements with one of our experts if you have a limited deposit available or are looking to maximise your borrowing.

Whilst every lender has differing criteria, lenders do tend to impose the following: minimum / maximum age, being an existing property owner, a minimum income requirement, and being resident in the UK. Furthermore, the property will need to be in a condition to be let, and there may be restrictions on the number of bedrooms, number of floors or number of units in a block. HMOs’ (Houses in Multiple Occupation) have different criteria from standard buy-to-lets, and may or may not be subject to licencing by the local authority.

Tax savings

Owning an investment property subject to a buy-to-let mortgage can provide you with some tax saving advantages. These could include offsetting interest payments, maintenance costs and agents’ fees. However, we always advise that you speak to a tax expert before agreeing to buy an investment property so that they can advise you of the options available to you.

Whilst the above is just a basic overview of buy-to-let mortgages, we may be able to help you if you are not a property owner, are retired, don’t have a regular income, or live overseas. Please contact us and speak to one of our experts to find out more, as we have access to the whole of the market and are experienced in finding the most suitable mortgage product for any situation. Also, with the upcoming changes to the taxation of rental income, it’s never been more crucial to get the right advice.

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Please be aware

It is considered mortgage fraud either to let a property while only paying for a residential mortgage, or to move into a property that you have told the lender you are renting out. Ensure you have the right mortgage for your circumstances by speaking with a Chartwell expert who can advise you accordingly.

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Frequently asked questions

Here are some of the most common FAQs we hear about buying a home

What is a buy to let mortgage?

A buy to let mortgage is a type of mortgage specifically designed for individuals who want to purchase property to rent out to tenants. These mortgages typically have higher interest rates and require a larger deposit than residential mortgages. The amount you can borrow is often based on the rental income the property is expected to generate.

Who can get a buy to let mortgage?

To qualify for a buy to let mortgage, you generally need to meet certain criteria such as having a good credit history, earning a minimum income, and being able to provide a larger deposit (usually at least 25%). Lenders may also prefer applicants who already own their own home, although this is not always a strict requirement.

How many buy to let mortgages can I have?

There is no set limit on the number of buy to let mortgages you can have, but it depends on the lender's policies and your financial situation. Some lenders may impose limits, while others may assess each application on its own merits. If you own four or more rental properties, you may be considered a portfolio landlord, which can involve more stringent lending criteria.

Can I rent to family members?

Renting to family members is possible with a buy to let mortgage, but it typically requires a specific type of product known as a regulated buy to let mortgage. These mortgages have different terms and conditions, and not all lenders offer them. It's important to disclose your intentions to rent to family members when applying for a mortgage.

What is a 'portfolio landlord'?

A portfolio landlord is someone who owns four or more rental properties. Lenders often have stricter criteria for portfolio landlords, including detailed assessments of the entire property portfolio, higher interest rates, and more comprehensive financial evaluations. This classification helps lenders manage the increased risk associated with larger property portfolios.

Will I be taxed on rental income?

Yes, rental income is subject to income tax. Landlords must declare rental income on their tax returns and pay tax on the profits after deducting allowable expenses, such as mortgage interest, property maintenance, and management fees. Additionally, landlords may be liable for capital gains tax when selling a rental property that has appreciated in value. Consulting with a tax advisor can help you understand your tax obligations and potential deductions.

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