Buy-to-Let Mortgages

A buy-to-let mortgage is a great investment in your future, so think about expanding your portfolio today.

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Buy-to-Let <span style="color:#FF5353">Mortgages</span>

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How to apply for a buy-to-let mortgage

1

Mashroom mortgages help you with eligibility

If you are thinking about buying your first rental property, we will help you with eligibility and source available deals for free.

2

We’ll guide you

Our expert advisors will guide you through the whole process. We’re different from other mortgage brokers, because we get paid by lenders, and rely on technology.

3

We’ll reduce a void period

We can help you with conveyancing too. Once you bought your property, reduce the void period by setting your listing live through Mashroom, and find your first tenants off the bat.

Our buy-to-let mortgage guide

Buy-to-let is one of the most popular ways to invest, and there are an estimated 2.7 million landlords in the UK.

Most people who purchase a property with the intention of letting it out do so with a buy-to-let mortgage.

Our buy-to-let mortgage guide

How do buy-to-let mortgages work?

Buy-to-let mortgages are similar to residential options, just with a few differences. Their primary reason for existing is so you can borrow a portion of the money required to buy a property and then let it to a tenant via the rental market.

A buy-to-let mortgage usually requires a higher deposit than a residential mortgage, and the interest rates associated with the loan also tend to be higher. Most buy-to-let mortgages are borrowed on an interest-only basis, meaning you pay back the interest but not the capital (more on that later). The fees are usually more expensive than a conventional mortgage.

Most buy-to-let mortgages have a term of 25 years, though it can be longer or shorter depending on your requirements. Within that length, there is a fixed or tracker term, which usually lasts for two, five or even 10 years. We’ll cover the differences between fixed and tracker mortgages in a bit.

What is an AIP?

Before you can begin the buy-to-let mortgage application, you will need to get an AIP. It stands for “agreement in principle” and is also known as a “mortgage in principle” and “decision in principle”. Lenders use different acronyms, but they all do the same thing.

What does an AIP do?

How can I get an AIP?

Will it affect my credit score?

How reliable is an AIP?

What happens after an AIP?

Are there any alternatives?

What else do AIPs help with?

Fixed-rate or variable mortgage?

There are many different deals available for buy-to-let mortgages, but they all roughly fall into two categories: fixed-rate and variable. But which one should you choose? Essentially, it comes down to what you want from your mortgage. Below, we’ve got the lowdown on fixed-rate and variable mortgages.

Fixed-rate
Variable

In the current mortgage market, fixed-rate options tend to be the most popular. They offer a special short-term rate lower than the lender’s standard mortgage rate, which is fixed for a period of time, usually two or five years, though some 10-year options are available.

Regardless of what happens with interest rates in the market, your fixed-rate mortgage will be locked to the length of the deal. So if you have a mortgage with interest rates of 1.5% but the lender raises them to 2% during your term, your rate remains at 1.5%. However, this works both ways as if the interest rates go down, you won’t benefit from this drop.

Once your term is over, you will be moved onto the lender’s standard variable rate (SVR). This is usually considerably higher than the fixed rate. That’s why most people remortgage when their initial fixed rate is about to expire, as they look to remain on a lower, competitive rate.

Also known as a tracker, a variable mortgage moves up and down according to the lender’s real-time rates. Those rates tend to change in line with the economy, so rates may go either up or down if there are any significant movements.

When there’s growth and inflation, interest rates usually go up to discourage people from spending. In downturns, the interest rate is often subject to a cut to encourage spending.

The Bank of England (BOE) sets the base rate, and lenders add their own rates on top. Currently, the BOE base rate is 0.25%, up from 0.1%. Even with the rise, these historically low-interest levels have led to fewer people getting variable mortgages.

Repayment or interest-only?

If you’re buying a home to live in, there’s no real need to get an interest-only mortgage. With a repayment mortgage, you pay off the interest and the amount owed each month until the house is paid in full. And it shouldn’t be any different with a buy-to-let property, right? That’s where things get a little bit more complicated. Allow us to explain…

What is an interest-only mortgage?

Why is buy-to-let usually interest-only?

But what about paying for the mortgage?

Can I get a buy-to-let on a repayment mortgage?

There’s nothing to stop you from getting a buy-to-let on a repayment mortgage, but your monthly payments will be higher. As a result, your profit margins from the rental income will be lower. For example, that same mortgage of £200,000 on a 1.5% interest-only charging £250 per month would cost you £800 per month. It’s important to remember that interest rates tend to be higher on buy-to-let mortgages, so you can also expect higher monthly payments on a repayment mortgage.

Can I get a buy-to-let on a repayment mortgage?

Buy-to-let mortgage interest rates

Lenders add their interest rates on top of the BOE base rate. Currently, the buy-to-let mortgage market is particularly competitive – especially as rates are still at a historic low even with the marginal rise towards the end of 2021. Interest-only mortgages become even more important when you factor in the higher interest for buy-to-let. Even so, it’s still necessary to search the market for a good deal and the most competitive interest rates.

How do I find the best interest rates?

Direct with the lender

Search comparison website

Broker

How do I keep interest rates down?

What else should I know about interest rates?

Who can get a buy-to-let mortgage?

Anyone can get a buy-to-let mortgage as long as they meet the criteria and plan on letting the property to tenants. Before you apply for a mortgage, the lender will ask a series of questions to determine your suitability and ensure you meet the necessary criteria. Requirements vary depending on the lender, though some aspects are universal to the process.

Buy-to-let lending criteria

The right type of buy-to-let

What about buying as a limited company?

What if I’m a portfolio landlord?

How much can I borrow?

What about the deposit?

Credit score

Personal circumstances

What do I need for the appointment

Once you have all the details needed and have done the calculations, it’s time to arrange an appointment. This will either be direct with the lender or with a broker, who will gather all your information and look for the best mortgage options. Once the broker has found a suitable mortgage, you will need to provide them with the same details that you would give the lender. The only difference is that the broker then passes these onto the lender and acts as an intermediary.

What do I need for a mortgage appointment?

  • At least three months’ bank statements
  • At least three months’ wage slips
  • At least two years’ tax returns if you are self-employed
  • Details of existing mortgages/loans/credit cards
  • Details of arrears, county court judgments or defaults (if applicable)
  • Details of existing life insurance, endowment, savings, pensions or healthcare policies
  • Proof of ID, either a passport, driving licence or other legal documents
  • Proof of address
  • P60 (if available)

It may also be worth having a copy of your credit report to hand – or, at the very least, you should know your credit score in advance of the appointment.

What do I need for a mortgage appointment?

What happens during the appointment?

The appointment will either take place in person or via a phone call. If it’s in person, you will need to bring the relevant documents with you. If, however, it’s via phone, the lender or broker will ask you to upload them to their online portal.

During the appointment, the lender or broker will assess the following:

What happens during the appointment?

How long does a mortgage appointment take?

Again, the length varies depending on the questions asked and the lender’s requirements. But you should aim to keep around an hour free, just in case it takes a little on the longer side. It’s not something that you want to rush, and the lender or broker will ask lots of questions about your circumstances, such as income and expenditure. Most mortgage appointments tend to last for about 45 minutes.

How long does a mortgage appointment take?

What are typical buy-to-let restrictions?

Ever since the financial crash in 2008, buy-to-let lenders have tightened their purse strings. As a result, borrowers need to meet all of the lender’s requirements, which sometimes seem pretty strict. Some lenders have watertight requirements they need you to meet before lending. Although we’ve already covered some of the lending criteria, the more specific requirements lenders may ask for are below.

Owning your home

You can’t live in the property

Can’t let to family

More than four properties

New homes

Book a free buy-to-let consultation

Book a free buy-to-let consultation

How can I find the best buy-to-let mortgage?

Searching for a buy-to-let mortgage can quickly become overwhelming, especially if you don’t know where to start. Essentially, there are three primary ways to source any type of mortgage, including buy-to-let: directly with the lender, using a search comparison website or through a broker.

Direct with the lender
Search comparison website
Broker

One option for finding a buy-to-let mortgage involves going directly to the lender. There’s no intermediary involved, and all of your dealings will be with a team member who works for the lender.

This is the easiest route for some borrowers, as there is a direct line of communication. However, this option takes the most work on your part as you need to find the best mortgage product.

Plus, not all lenders advertise their services on search comparison websites or are even visible online. That means you could lose out on potential mortgage products because the lender only works with brokers, or it’s too hard to find their services online.

A search comparison website shows you the available lenders, their rates, product details and fees. If you’re not using a broker, a search comparison website is the best way to find a mortgage, as it groups all of the available lenders based on the search terms you’ve listed.

To illustrate, if you’re searching for a mortgage of £250,000 and have a deposit of £100,000, the search results will be based on your requirements. You can then contact the lender to see if it’s possible to get a mortgage with them.

The primary search comparison websites are:

Brokers are usually the most popular option with buy-to-let investors. You give your details and requirements, and they find the most suitable mortgage products. The broker will provide you with a few options and make a recommendation.

Once you’ve decided on the lender you’d like to apply with, the broker acts as the intermediary between yourself and the lender. This is the best approach for many landlords, as it removes the hassle, and they know a broker is working for them to simplify the borrowing process.

Brokers also have access to mortgage products that aren’t on the high street, so they could potentially find you a deal you wouldn’t be able to source yourself. Some brokers charge a fee for their service, while others are free to use.

What happens during the mortgage application?

Regardless of how you find a lender, you will need to complete the application process after receiving your agreement in principle. It’s good to know what to expect in advance to prepare and get the correct information together to speed up the application.

Documents

Solicitor

Valuation

Underwriting

Exchange

Completion

How long does the mortgage application take?

Buy-to-let fees

Buy-to-let mortgages tend to come with fees. These are separate from the monthly payments and are often required before the mortgage begins, although sometimes they come into effect at the end of the mortgage. It’s important to account for these fees as they make up a mortgage’s “true cost”. The true cost is the amount you pay, including mortgage fees, lender arrangements fees and essentially anything you’re charged on top of the loan amount.

Booking fee

Broker fees

Lender arrangement fees

Legal fees

Telegraphic transfer fees

Valuation fee

Mortgage exit fee

Early repayment charges

Solicitor

Valuation

Have you got everything you need to ensure your buy-to-let is compliant?

Gas Safety Certificate
Gas Safety Certificate
Having an up-to-date Gas Safety certificate approved by a qualified engineer is a legal requirement. Valid for 1 year.
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EICR
EICR
It is mandatory for all rental properties to have a valid Electrical Installation Condition Report (EICR). Valid for 5 years.
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EPC
EPC
UK law requires landlords to complete an Energy Performance Certificate before advertising a home. Valid for 10 years.
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Different types of buy-to-let

There are different types of buy-to-lets available for landlords, meaning there’s more than one mortgage option when it comes to financing the property. The buy-to-let mortgage you get will depend on how you plan on utilising the investment property.

1

Individual

An individual buy-to-let mortgage is the most conventional type available. It sees you purchasing a property with the intention of renting it out to a tenant. You assume personal responsibility for the mortgage and typically let the property via an Assured Shorthold Tenancy. Most lenders offering individual buy-to-let mortgages provide products up to 85% LTV.

2

SPV

SPV means Special Purchase Vehicle and sees you purchasing your buy-to-let property as a limited company. Over the years, SPV mortgages have grown in popularity as they can reduce tax bills for some landlords who fall into the higher tax bracket. With an SPV, you pay corporation tax rather than personal income tax, and you could save thousands per year. However, it’s always worth going through the numbers with a financial advisor before setting up an SPV to see if it’s suitable for your needs. Most buy-to-let lenders now offer SPV mortgages, although they aren’t typically available with high-street banks. LTVs tend to go up to 80%, but it depends on the lender.

3

HMO

HMO stands for House of Multiple Occupation and is an alternative type of buy-to-let. With an HMO, landlords rent out the rooms to three or more unrelated tenants, each receiving an individual rental contract. This is different from a conventional buy-to-let, where the landlord uses one contract to rent out the property. You will need an HMO buy-to-let mortgage to borrow the necessary funds for this type of let and may also need a licence from the local council. If the property has fewer than five bedrooms, then you need to check with the council where the property is located. If, however, it has five or more bedrooms, a licence is mandatory.

4

BRRRR

BRRRR is an acronym for Buy, Refurbish, Rent, Refinance and Repeat. It sees landlords identifying below-market value properties that need significant renovation. The aim is to purchase the property, renovate it, bring its value in line with the local market and then rent it out. Once the property has a tenant, the landlord refinances to borrow more capital and invests in another BRRRR opportunity. Generally speaking, investors won’t be able to get a buy-to-let mortgage with a BRRRR and will need alternative finance, such as a bridge loan or renovation mortgage (more on that shortly).

Other types of mortgages used for buy-to-let

A buy-to-let mortgage is enough to secure funding for your investment most of the time. There may, however, be occasions where it doesn’t meet the requirements, and you will need to source alternative financing options. Below, we’ve detailed the most common borrowing options landlords use when a buy-to-let mortgage isn’t available.

1

Let to buy

A let-to-buy mortgage sees you rent out your current home and buy a new one to live in. You will need to have two mortgages, one for the property you’re renting out and another for the home you plan on moving into.

2

Bridging finance

Bridging finance can bridge the gap between the sale of one property and purchasing another. It acts as a short-term option covering the missing finance landlords might have as they wait for the sale of their previous investment to go through. Bridging finance is more common in the business world, but it’s also available for individual buy-to-lets and is often referred to as bridge-to-let.

3

Renovation mortgage

Some landlords prefer to buy properties that need renovation, purchasing them for below market value with the intention of raising their value through repairs and redecoration. However, most properties that need significant work don’t qualify for a conventional buy-to-let mortgage. Therefore, you will need a renovation mortgage, which lets you borrow the amount for both the purchase and the renovation costs.

Mashroom Mortgages is a trading name of Emash Ltd which is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority.

Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it. A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.

Emash Ltd. Registered Office: 21 Navigation Business Village Navigation Way, Ashton-On-Ribble, Preston, Lancashire, England, PR2 2YP. Registered in England Number: 11735831.