If you’re buying a property to rent out, buy-to-let mortgages are for you. This guide explores how buy-to-let mortgages work, who’s eligible and how to apply if you’re a first-time buyer.
What is a buy-to-let mortgage?
A buy-to-let mortgage (BTL) is designed for people who want to buy a property to rent out rather than to live in. They’re ideal for landlords looking to widen their portfolio or investors looking for their next opportunity.
Who’s eligible for a buy-to-let mortgage?
To apply for a buy-to-let-mortgage, you should:
- Be 21 years old
- Have a good credit score
- Have an income of at least £25,000 a year
Some lenders may also require you to own a house outright or with an outstanding mortgage.
Is a buy-to-let mortgage right for me?
You need to know your property’s rental yield to ensure a buy-to-let mortgage is profitable. A good rental yield is benchmarked at 5%.
For instance, if your home costs £100,000 and you charge your tenants £200 a week, your annual rent will be £10,400. Divide 10,400 by 100,000 and multiply by 100. The rental yield is 10.4%.
How do buy-to-let mortgages work?
Buy-to-let mortgages are similar to residential mortgages, but some key differences include:
- How much you can borrow
- Buy-to-let mortgages are interest-only
- Buy-to-let mortgages may require a larger deposit
The amount you can borrow
The amount you can borrow is based on your rental income. Ideally, this should be 20-35% higher than your mortgage payments. Lenders want to ensure you have enough to cover your mortgage payments.
Buy-to-let mortgages are interest-only. This means you’ll pay interest on your mortgage instead of the total loan amount. Your monthly payments will decrease with time, but you may need to sell the house, remortgage or pay the loan in full once the term ends.
You’ll need a 20-25% deposit for a buy-to-let mortgage. Many lenders will also charge a product fee.
How to apply for a buy-to-let mortgage
Ready to apply for a buy-to-let mortgage? The first step is contacting a mortgage broker, who can advise on the best deal. Below are the documents you’ll need to provide:
- 3 months of payslips, bank statements and self-assessment tax returns (if self-employed)
- Proof of ID and current address
- Proof of deposit
- Details of your solicitors and estate agent
- Mortgage statements for your existing properties (if applicable)
How long does my buy-to-let mortgage application take?
It typically takes 2 to 4 weeks to receive an offer on your buy-to-let mortgage application.
Buy-to-let mortgages for first-time buyers
You can get a buy-to-let mortgage as a first-time buyer, but it may not be as straightforward. When it comes to first-time buyers, most lenders:
- Ask for a larger-than-average deposit (typically between 25-40%)
- Charge a higher interest rate
- Look for a higher projected rental income to cover mortgage payments
Buy-to-let mortgages can bring significant benefits to first-time buyers. They’re a safe long-term investment, as property values will likely increase.
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