What is a buy-to-let mortgage?
A buy to let mortgage is designed for purchasing a property that you intend to let out to tenants, rather than live in yourself. Unlike a standard residential property, you, the borrower, will not be living in the property. This type of mortgage allows you to leverage the rental income potential of a property to build your investment portfolio.
Key features of a buy-to-let mortgage
While the fundamentals of a mortgage remain the same, buy-to-let mortgages have some distinct characteristics:
- Deposit: The typical deposit required for a buy-to-let mortgage is usually higher than for a standard residential mortgage, often starting around 25% of the property’s purchase price. However, if you can afford to put down a larger deposit, such as 40% or more, you may be able to access more competitive interest rates and better deals.
- Rental income assessment: Lenders will primarily consider the potential rental income the property is likely to generate. They will assess whether this income is sufficient to cover your mortgage payments and other costs, providing a crucial part of their lending decision.
- Available on interest-only and capital repayment: Most buy-to-let mortgages are arranged on an interest-only basis. This means your monthly payments only cover the interest on the loan, not the capital. This can make your monthly outgoings more manageable, though it’s important to remember that you will need a plan to repay the original loan amount at the end of the mortgage term.
- Tax Considerations: If you earn income from letting out property in the UK, you must report it to HMRC. You can deduct certain costs from your rental income to reduce your taxable profit
Securing your investment
It’s important to understand that a buy-to-let mortgage, like any mortgage, is secured against your property. This means if you are unable to keep up with your mortgage repayments, your property may be repossessed.
Tax rules can change and the impact of taxation and any tax relief depends on your circumstances, including where you live.
Regulation and your protection
A standard buy to let mortgage which is the most common type, for landlords investing in property to generate a profit are not regulated by the FCA.
A consumer buy-to-let (CBTL) mortgage is designed for accidental landlords—people who didn’t plan to rent out a property but ended up doing so due to life changes like inheriting a home, relocating for work, or moving in with a partner. Consumer buy to let mortgages, are regulated by the FCA and do offer protection for accidental landlords.
We’re here to provide expert advice and help you understand all the details of your buy-to-let mortgage options. We’ll guide you through the process, from initial consultation to securing the best deal for your circumstances, helping you take the first steps or move forward on your journey as a landlord.
Your property may be repossessed if you do not keep up repayments on your mortgage.