Buy-to-Let Lifetime Mortgage
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Buy to Let Mortgages Explained
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Read our article to get the facts:
- What is a buy-to-let mortgage?
- How do you get a buy-to-let mortgage?
- Tips for first-time buyers.
- How much could you make?
While later life finance is our primary focus, we encourage people of all ages to make smart financial decisions to aid retirement.
Hence, we’ve researched some brilliant ways to grow your portfolio, including with a buy-to-let.
Read more to find out how!
What Is a Buy-To-Let (BTL) Mortgage?
A buy-to-let mortgage is a mortgage that caters to those who want to buy a property to rent out instead of living in it.
How Do Buy-To-Let Mortgages Work?
Buy-to-let mortgages work in that the lender who rents out the property only pays off the monthly interest portion of the mortgage and settles the capital payable at the end of the agreement term.
Who Can Get a Buy-To-Let Mortgage?
To get a buy-to-let mortgage, you need to be 18 or over; however, in most instances, you need to be over 21.
Most lenders have an upper age limit for buy-to-let mortgages, and in general, it’s 75 years old; some providers will push this up to 85 years.
You should also have a good credit score and earn more than £25,000 a year.
Buy-To-Let Mortgages for First-Time Buyers
Buy-to-let mortgages are available to first-time buyers; however, it’s more complex than for non-first-time buyers.
As a first-time buy-to-let applicant, you’ll probably need a bigger deposit than other buyers and will need some income to cover initial repayments as you’ll not be receiving a rental yet.
First-time buyers will also not qualify for first-time buyer relief, so they’ll be charged the same rate as other buyers who’re not buying their first home.
Buy-To-Let Mortgage Rates
Buy-to-let mortgage rates typically increase depending on the price of the property being purchased; on average, the rates are 3.4%.
How Much Can I Borrow Using a Buy-To-Let Mortgage?
How much you can borrow using a buy-to-let mortgage will depend on the rent you could charge for the property you want to purchase.
Generally, your income should be 125% of your repayment amount.
How Much Deposit Do I Need for a Buy-To-Let Mortgage?
The deposit you need for a buy-to-let mortgage is 25%; however, the deposit required can range from 20% to 40%.
Restrictions Landlords Need to Know About
Landlords1 need to know about these restrictions.
You can’t let a property that is funded by a standard mortgage
Allowed Landlord Charges
A landlord may only charge a tenant the following:
- A refundable security and holding deposit
- A fee if they end their lease early
- A fee for changing a tenancy agreement during the term is capped at £50
- Default fees related to late payment of rent or lost keys
Affordability Rules for Landlords
Affordability2 rules for landlords differ per provider; as a general rule, you need to earn over £25,000 per annum, and your rental income should cover the cost of your mortgage at between 125% and 145%.
Remortgaging for Landlords
Remortgaging for landlords is similar to remortgaging a standard loan. However, the bank’s criteria are a bit different.
The landlord might want to remortgage to get a better deal with a lower interest rate or access more capital to expand their portfolio.
Is a Buy-To-Let Mortgage Worth It?
Buy-to-let mortgages done right can be very worthwhile. You earn a regular income and grow this as your property value increases.
Here are a few advantages to a buy-to-let mortgage.
Long-Term Investment Gains
You will generate a growth in your capital as the value of your property grows over time.
The Rental Market Is Strong
Rental yields3 can be as high as 8% in popular areas. There is a high demand for rental properties.
With a buy-to-let mortgage, you’ll qualify for tax relief on your mortgage earnings; however, the 40% relief offered in recent years has been significantly reduced.
Let’s have a look at the disadvantages of a buy-to-let mortgage you could face:
Tenants might miss payments on their rental, which will leave you out of pocket. They could also damage the property.
You may be left with a vacant property in some instances if you can’t find a tenant.
It’s wise to look into landlord insurance to cover some of these risks.
Higher Stamp Duty
Should you purchase a property valued at over £40,000, you’ll be liable for an additional 3% stamp duty over and above the average property stamp duty.
Long-Term Market Uncertainty
If the value of your property decreases in the long-term, it could cost you in capital value.
It’s hard to predict the rental market with a long-term view; this is something to keep in mind.
Eligibility criteria for a buy-to-let mortgage are more stringent than a regular mortgage as it’s viewed as a more risky investment by lenders.
These criteria will depend on your provider.
Minimum Deposit Requirements
The minimum deposit required is around 25%.
Your income will need to be more than £25,000 a year.
You need to have a clear credit history.
Other Rules & Requirements
Other rules and requirements for landlords include:
- Maintain your property in a decent state of repair.
- You need to carry out annual safety checks.
- You may incur costs if you need to evict tenants who don’t pay.
But-To-Let Cost & Fees
Let’s take a look at the cost and fees associated with buy-to-let.
Typical Buy-To-Let Mortgage Costs
The typical buy-to-let mortgage costs include:
- Lender Application Booking Fees – Some lenders charge a lender application booking fee of up to £500.
- Valuation Fees – These are around £3000.
- Mortgage Product Fees – These could be between £500 & £1500.
- Mortgage Exit Fees – This could cost about £300
The typical legal costs of buy-to-let mortgages include:
- Solicitor Fees & Disbursements – You could pay between £800 and £1500.
- Stamp Duty – If the property you purchase is over £40,000, you could pay 3% stamp duty and up to 15% on more expensive properties.
- Buy-To-Let Stamp Duty Calculator – You can use a stamp duty calculator to get an estimate of what the stamp duty could be on the property you want to purchase.
The typical ongoing costs of buy-to-let mortgages include:
- Property Maintenance – You’ll need to cover regular maintenance costs.
- Letting Agent Fees – If you use a letting agent, you’ll need to cover their monthly fees of around 10% of the rental amount.
- Income Tax – The income you earn from a buy-to-let property will count towards the income tax you’ll be liable for.
- Landlord Insurance – You need to cover the cost of landlord insurance to protect against loss of income and accidental injuries to tenants and other risks.
What Are Typical Buy-To-Let Rental Returns & Yields?
Typical buy-to-let rental returns and yields are anything between 5% and 8% as a rental return, and at the same time, if the value of your property increases, you’ll also generate capital growth.
What's A Buy-To-Let Mortgage?
As the name states, buy-to-let (BTL) equity release products or plans are for people looking to borrow against a buy-to-let property or buy one. As with multiple equity release1 providers, the buy-to-let home shouldn’t be occupied by the owner and must be rented out under the Assured Shorthold Tenancy Agreement.
How Do I Get A Buy-To-Let Mortgage?
You’ll need to apply with an equity release lifetime mortgage provider.
Your provider will consider the house’s potential rental income to determine how much you can borrow when you’re buying a home. It lets them decide whether they can approve a new loan.
In other words, they want to see if your income will be able to pay for the new loan or not.
For the most part, providers will require you to have a 25-30% rental income more than the mortgage’s repayments.
Simply follow their instructions and pay the fees:
- Financial adviser fees – they’ll help you to put the plan in motion.
- Arrangement fees – this is for your provider.
- Solicitor fees – legal representation is essential.
- Property valuation fees – before the mortgage is approved, providers need to know the property value.
There you have it!
Is A Buy-To-Let Mortgage A Good Idea?
It’s a great idea if you want to up your property portfolio and to have another investment to supply you with an additional income once you retire.
If that sounds good to you, then yes. BTL is an excellent idea for you, and it’s one of the most secure investments out there.
Who Qualifies For A Buy-To-Let Mortgage?
You can qualify for a BTL mortgage if:
- You want to invest in properties.
- You can afford and understand the risks associated with property investment.
- You’re already a homeowner, either outright or with a mortgage.
- Your property’s value is a minimum of £70,000 and a maximum of £6 million.
- Your property must be in the UK.
- Your credit score is excellent, and you aren’t limited too much by other loans.
- Your annual salary is £25,000 minimum. If you earn less than the minimum, it’ll be more challenging to get an approved BTL plan from a provider.
- You’re older than 55 and younger than 90.
Purchasing a buy-to-let property is a significant investment with potential risks. However, the rewards can be very worthwhile.
Whatever major financial decisions you make, we always suggest contacting a financial advisor.
Get in touch with yours today!
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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.