Buy To Let Explained

When do I need to use a Buy to Let mortgage?

How much can I borrow?

Are Buy to Let mortgages calculated on my salary?

So how are Buy to Let mortgages calculated?

Who will assess the potential monthly rental figure and the property value?

So do most people borrow on an interest only basis?

Does it matter what type of tenant is in the property?

Does it matter what type of property?

What about if your borrowing as a limited company?

Is a problem if I do not have a clear credit history?

Buy to Let overview

How long have Buy to Let mortgages been around?

How big is the Buy to Let market?

Who invests in Buy to Let?

Ask us a question about Buy to Let

Buy to Let mortgage borrowing guidelines:

When do I need to use a Buy to Let mortgage?

If you are renting out a residential property to a tenant(s) and not living in the property yourself.  Mortgage fraud will be committed if you use a normal residential mortgage of this type of activity, without informing the mortgage lender.
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How much can I borrow?

In most cases, you will need to put down a 10% to 20% deposit depending on the mortgage lender.  The maximum is 90% loan to property value, meaning on a £100,000 property you would need to put down £10,000.
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Are Buy to Let mortgages calculated on my salary?

In most cases no, although salary related Buy to Let mortgage products are starting to emerge in the market.
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So how are Buy to Let mortgages calculated?

Buy to Let mortgages are calculated on whats called the rent to interest cover calculation.

This means monthly rental income needs to be a percentage higher than the monthly interest only mortgage payment.  This percentage varies between mortgage lenders but normally monthly rent needs to be between 10% and 30% higher.

For example if the interest only monthly mortgage payment was £500, and the rent to interest cover was set at 125%, then the monthly rental required would be £625. 

If the monthly rental income does not meet this required figure then the overall mortgage lending would be set at a lower percentage loan to value.  This is because the monthly interest mortgage payment will automatically be lowered if the loan is lessened.
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Who will assess the potential monthly rental figure and the property value?

An independent valuer (surveyor) appointed by the mortgage lender, who works in the local area and has a good knowledge of the local rent potential and residential values.
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So do most people borrow on an interest only basis?

Yes, in the vast majority of cases because people want their capital to stretch further and maximise capital for further purchases.  This means they can maximise any property potential.
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Does it matter what type of tenant is in the property?

Yes, only certain mortgage lenders will lend to certain tenant types.  DSS tenants and asylum seekers for example are more difficult to fund.
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Does it matter what type of property?

Again yes, certain mortgage lenders will only fund certain property types.  It therefore makes sense to explore funding options before committing to any purchase.
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What about if your borrowing as a limited company?

Many people do set up limited companies to invest in property for tax reasons.  Mortgage lenders have recognised this fact, and a proportion will allow limited company borrowing.  Investors should however be aware that limited company borrowing will tend to be slightly more expensive.
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Is a problem if I do not have a clear credit history?

No, Buy to Let mortgages are available for individuals with adverse credit histories, but again investors should be aware these will be more expensively priced.
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Buy to Let overview:

How long have Buy to Let mortgages been around?

Buy to Let mortgages became available in 1996, prior to this point residential property investment mortgage had been carried on a commercial mortgages basis, meaning each transaction was individually priced.
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How big is the Buy to Let market?

Buy to Let mortgages now represent 8% of UK mortgage lending according to the Council of Mortgage Lenders, and there are £83.9 billion of loans outstanding.
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Who invests in Buy to Let?

Despite the hype surrounding Buy to Let investment and its new entry investors, the amateur investor is still very much sitting in the markets passenger seat.  According to 2006 CML statistics the large portfolio landlord remains dominant - 13% of landlords own 74% of the Buy to Let stock, and more striking 53% of landlords own a mere 3% of the stock.  So despite the growing number of people active in Buy to Let market, amateurs impact remains relatively small.
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Ask us a question about Buy to Let

If you would like to ask a question or if you would like some more information on Buy to Let finance please ask a question below:

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You can also find out about Development Finance and Commercial Mortgages on our dedicated pages.