A buy-to-let mortgage is a mortgage arrangement specifically designed for lending on a property which you intend to rent out.

It is not designed to be used on a property that you intend to live in, nor should it be taken out with that intention in mind.

You cannot use a buy-to-let mortgage to buy a property in which a member of your family will be living, and the lender will always check this condition during the application process.

Buy to let mortgages and legislation

Whilst a buy-to-let mortgage has similarities with a residential mortgage in that it is a loan secured on a property, how they are underwritten and regulated is entirely different.

A buy-to-let mortgage arrangement is not a regulated product and therefore advice and arrangement of these mortgages is not covered under legislation. This means that many mortgage brokers operating in this area are not regulated or controlled by any statutory authority and are not obliged to give you any specific advice, recommendation or information on your lending plans.

Use a mortgage broker to arrange a buy to let mortgage

If you are arranging a buy-to-let mortgage it is probably worth doing it via a broker who also does residential mortgages as most of these will handle your buy-to-let mortgage in the same way that they would a regulated contract, and still provide you with a full mortgage illustration and advice with recommendation.

How a buy to let mortgage is underwritten

A buy-to-let mortgage is a loan to be used to generate a profit. It is therefore a business transaction. When underwriting the lender is concerned with the level of rent you can expect to achieve on the property, against how much interest you are being asked to pay.

Typically a lender will look for the monthly rent to exceed the mortgage pay rate by one quarter, for example one thousand pounds per month in mortgage payments would need an assessable rent of one thousand two hundred and fifty pounds per month.

Buy-to-let mortgages are normally set up on an interest only basis as this is more advantageous for most property owners when it comes to completing their tax returns. Lenders will generally ask for a little more deposit on a buy-to-let mortgage than in the residential market and the rule of thumb is a minimum of twenty five percent.

Although the lender does not directly underwrite the mortgage against the applicant’s personal income, most now require the applicant to have a minimum personal income level and this is typically twenty five thousand pounds per annum. Lenders are understandably cautious about lending to applicants who derive their income from property development as a buy to let lender is not comfortable with their funds being used to fund development projects.

Buy to let mortgages and tenancy options

Properties are rented on a number of different basis in the UK, the most common of which is the assured shorthold tenancy where the tenant is an individual, a couple or a family. The assured shorthold tenancy is acceptable to all buy-to-let mortgage lenders.

Other types of tenants can be attractive to landlords as they generate more income. Examples of this, common in university towns, are student lets where a number of students will be living in one house. Other properties may be on a multiple occupancy basis where people rent on a room by room arrangement. These kind of letting scenarios are not acceptable to all lenders and you will need specialist advice from your mortgage broker to arrange lending on these types of properties.

Similarly, if you are buying the property as a limited company, this is not acceptable to all lenders and again you will require specialist advice.

Finding the right mortgage broker for buy to let mortgages

If you intend to buy a property in order to let it and generate profit, please remember that like all business projects it makes sense to get the right advice at outset. The best place for that advice is via a mortgage broker. If you can find a mortgage broker that runs their own buy-to-let portfolio and understands the market in depth you will be talking to the right individual.

Contact our independent mortgage brokers

If you require a buy to let mortgage or re-mortgage our team are waiting to assist you – contact us now