Buy-to-let mortgages explained

How buy-to-let differs from a residential mortgage

A residential mortgage is for a home you live in. A buy-to-let mortgage is for a property you let to tenants. Letting a property that has a residential mortgage, without your lender's permission, can breach your mortgage terms.

The main differences are:

• The rent matters. Lenders look closely at the expected rental income, not only your personal income.
• Deposits are usually larger. Buy-to-let lenders generally ask for a bigger deposit than residential lenders. How much depends on the lender and the property.
• Interest-only is common. Many buy-to-let mortgages are taken on an interest-only basis, which means the loan itself is still owed at the end of the term. You need a clear plan to repay it, such as selling the property.
• Regulation is different. The FCA does not regulate some forms of buy-to-let mortgages, so some of the protections that apply to a residential mortgage may not apply. It is worth understanding this before you apply.

What lenders look at

Criteria vary between lenders, but these areas come up most often.

• Rental income. Lenders check that the expected rent covers the mortgage payments with room to spare, using their own calculation. You may need a letting agent's estimate of the rent.
• Your deposit. The size of your deposit affects which lenders and deals are open to you.
• Your personal finances. Many lenders also look at your income, outgoings and credit history, and some set a minimum income.
• Your experience. Some lenders prefer applicants who already own their home or have let property before. Others accept first-time landlords.
• The property. Its type, its condition and how it will be let all matter. Houses in multiple occupation and holiday lets are usually specialist areas.
• Your portfolio. If you already own several let properties, lenders may look at the whole portfolio, not just the new purchase.

Personal name or limited company?

You can buy a rental property in your own name or through a limited company set up for the purpose. The choice can affect which lenders are available to you, the paperwork involved and how the rental income is taxed.

There is no single answer that suits everyone, and the tax side is outside the scope of mortgage advice. It is worth discussing with an accountant before you decide, ideally before you make an offer on a property. Once you know which route you are taking, we can look for lenders that fit it.

Costs and risks to think about

Buy-to-let is an investment, and it helps to go in with a clear view of the costs and risks.

• Buying costs, such as legal fees, surveys and Stamp Duty Land Tax, which can work differently when you buy an additional property. Your solicitor can confirm what applies.
• Running costs, including repairs, insurance, letting agent fees, safety certificates and periods without a tenant.
• Changes in interest rates, which can raise your mortgage payments when a deal ends.
• Property values can fall as well as rise, and the rent may not always cover the mortgage.
• Landlord responsibilities. Letting a property comes with legal duties to your tenants.

Landlord insurance and rent protection are worth considering too, and we can help with both.

The steps to a buy-to-let mortgage

1. Strategy call. We talk through your plans, the property you have in mind and whether you are buying in your own name or through a company.
2. Lender shortlist. We look for lenders on our panel whose criteria fit your plans and the property.
3. Agreement in principle. Where available, this gives an indication of what a lender may lend before you make an offer.
4. Application and valuation. We submit the application and handle questions from the lender. The valuer will usually assess the likely rent as well as the value.
5. Completion. The lender releases the funds to your solicitor and the purchase completes.

How we can help

GK Finance is based in Northampton and advises landlords and would-be landlords across the UK. Your adviser is CeMAP-qualified, with more than fifteen years of UK industry experience. As an appointed representative of HL Partnership, we have access to more than 90 lenders and providers.

Each lender makes its own decision on every application, so we cannot promise an outcome. We can help you understand your options before you commit. You can read more about our buy-to-let mortgage advice, and if your current buy-to-let deal is ending, our remortgaging guide covers the timing and the checks.