Buy-to-Let Lifetime Mortgage

What Is a Buy-To-Let Lifetime Mortgage & How Does It Work?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Considering a Buy-To-Let Mortgage? Discover the Affordability Rules for Landlords & How Much You Can Borrow Using a Buy-To-Let Mortgage. Find Out if It’s Best for You.

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Become a landlord today and start earning right away with a buy-to-let mortgage.

Get in on the deal!

The rental property market in the UK is worth £21,6 million and growing. Don’t miss out on easy earnings.

As experts in our field, we discuss the following in this article:

    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%.

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    Restrictions Landlords Need to Know About

    Landlords1 need to know about these restrictions.

    Property Rentals

    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:

    • Rent
    • 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.

    Advantages

    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.

    Tax Benefits

    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.

    Potential Disadvantages

    Let’s have a look at the disadvantages of a buy-to-let mortgage you could face:

    Tenant-Related Risks

    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

    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%.

    Income

    Your income will need to be more than £25,000 a year.

    Credit History

    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

    Legal Costs

    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.

    Ongoing Costs

    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.

    Common Questions

    What's A Buy-To-Let Mortgage?

    How Do I Get A Buy-To-Let Mortgage?

    Is A Buy-To-Let Mortgage A Good Idea?

    Who Qualifies For A Buy-To-Let Mortgage?

    In Conclusion

    Whatever major financial decisions you make, we always suggest contacting a financial advisor.

    Purchasing a buy-to-let mortgage property is a significant investment with potential risks.

    However, the rewards can be very worthwhile. 

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    Editorial Note: This content has been independently collected by the EveryInvestor 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.