Mortgage options for first time and experienced landlords
- We are specialists: discuss anything from standard buy-to-let to complex HMO
- Unbiased mortgage recommendation: we are not tied to any lenders
- Get a great deal thanks to our comprehensive lender search
- Access deals up to 85% loan to value
- No minimum personal income required (rental, pension, investment and part-time income considered)
- Less hassle for you: our team will process your case to completion
- Decision in principle from a lender commonly within two hours
Who we can help *:
- Experienced and inexperienced landlords
- Applicants looking for lenders with no upper age limit
- Limited companies, LLPs and SPVs
- Self-employed borrowers and contractors
- First-time buyers who are also first-time landlords
* Subject to other criteria
When do you need a specialist mortgage
If you wish to rent out residential properties, you cannot use an ordinary mortgage. You will need a specialist landlord mortgage product instead.
Rental mortgages are highly popular with residential property investors in the UK. They allow borrowers to leverage their capital for a profitable return, and can be a sound alternative to traditional savings.
Demand for buy-to-let finance has soared since it first took off in 1996. By the end of 2014, around 15% of all outstanding mortgages in the UK were buy-to-let loans. Competition has led to a booming market, with diverse products available to suit all kinds of property investors.
As a specialist mortgage broker, our goal is to find you a great deal on a product tailored to your requirements. Your advisor will undertake a comprehensive search of products from a wide range of lenders.
See the latest mortgage rates and deals
As of summer 2016 lenders are introducing ever more competitive mortgage products, take a look at our rates table to see the range of deals that Commercial Trust can source for you, or enquire about a new deal today.
You will find many lenders using a stricter calculation to work out the amount they are prepared to lend on a buy-to-let property. This means an increased ratio between the monthly rent charged and the monthly mortgage payment you make.
We can also help with:
- products with free valuations and solicitor’s costs
- mortgages with no ERCs (early repayment charges)
- mortgages for both individuals and limited companies, with up to four-way ownership
- British nationals living abroad and non-British nationals with three or more years’ residency
- second mortgages on buy-to-let properties
- uninhabitable properties and properties going through probate
Buy-to-let loans are based on rent, rather than personal income
These are specialist products that allow you to borrow based on the income-generating potential of your property.
Though it is worth noting that a proportion of lenders will require a minimum income of £25,000 per year from an applicant. We will explain how this works to you.
Even if you have a low personal income, your advisor can help you. As long as your rental income sufficiently covers your mortgage interest payments, there are lenders who will consider funding your venture.
Lenders use rental income to calculate how much you can borrow. As a lower income limits how much an owner-occupier can borrow, a lower rent limits how much you can borrow against a rental property.
But different lenders use different rental calculations. Your advisor will know where your application will have the best chance of acceptance.
Other key differences from owner-occupier loans:
- Borrowing criteria. Some buy-to-let criteria are more lenient than those for owner-occupier loans. For instance, some lenders will allow investors to borrow into retirement, subject to other criteria. Borrowers who do not meet typical income requirements may also be able to access finance.
- Regulation. Most buy-to-let mortgages are not regulated by the Financial Conduct Authority. (But Commercial Trust is authorised by the FCA to provide buy-to-let mortgage advice.)
- Risk weighting. Lenders consider buy-to-let somewhat riskier than residential mortgages. This means that interest rates and fees tend to be a little higher. It also means that buy-to-let borrowers need to pay a larger cash deposit in most cases.
The minimum deposit is 15% of the property value
landlord investors must put down larger cash deposits than owner-occupiers. The most any lender will agree to lend is 85%, leaving the borrower to cover the remaining 15%. (This is an 85% loan to value, or LTV, mortgage.)
Not all lenders allow borrowing up to 85% LTV. Most lend no more than 70–75% of the property value. And if you want to qualify for products with the lowest interest rates, you will need to borrow no more than 60%.
60% LTV mortgages are more suitable for risk-averse investors who prefer a larger equity buffer. Between the lower interest rate and smaller loan size, they also allow investors to keep their repayment costs down. And if your eventual goal is to have an unencumbered property, 40% of equity gives you a good head start.
Many landlords opt for interest-only mortgages
Data from the Council of Mortgage Lenders suggests that 75% of btl mortgages are on interest-only terms. This means that the borrower repays only the interest each month, while the capital remains level. They pay off the capital in full at the end of the loan term.
The popularity of interest-only loans varies by region. For instance, it is far less prevalent in Scotland and Northern Ireland, where capital gains are less likely. In these regions, more buyers opt to pay off the loan principal as well as the interest.
But interest only remains a popular strategy, even in regions with muted price growth. The reasons for this include cheaper monthly repayments and certain tax benefits.
Interest-only borrowers need an exit strategy
When an interest-only term ends, the borrower must repay the debt in its entirety. There are many ways to do this. How you repay the loan principal at the end of the term is your ‘exit strategy’, and it is wise to plan this ahead of time.
Many BTL borrowers remortgage regularly throughout their loan. This can allow you to switch to cheaper rates or release equity from the property as cash.
Some switch as soon as the introductory period of their mortgage has ended. Remortgaging before this point can be costly, as most lenders levy early repayment charges (ERCs). If you want the flexibility to repay your mortgage early, ask your advisor about ERC-free options.
Remortgaging involves taking out new finance to repay the old loan. But it is not an exit strategy, as there is still debt to repay.
Borrowers will need to clear this debt by other means. In some cases, landlords might sell their property for a profit. Or they might repay the loan with money from other sources, such as equity from other properties.
A repayment mortgage gives you an unencumbered property
A property is unencumbered when there is no loan secured against it. If your eventual goal is to have an unencumbered asset, and you can afford higher repayments, you might opt for a capital repayment mortgage.
Unencumbered properties generate higher profits, because there is no loan interest to pay off. They also generate more proceeds when sold, because there is no capital loan to repay.
Repayment mortgages suit investors who are planning to have either a steady income or a large cash lump sum to support them later in life. They might also wish to leave a mortgage-free property to their children.
Part-repayment, part-interest-only mortgages are also available. These can benefit investors in the following situations:
- they need to make up a shortfall in an under-performing investment
- they want to pay down some of their debt, but can’t afford a full repayment mortgage
- they want to combine the benefits of growing equity and lower repayments
There is no such thing as the ‘best’ landlord mortgage
Every investor has different plans and financial goals finding the ‘best’ mortgage is about more than simple rate shopping. It is about finding the most appropriate financial solution for your circumstances and goals.
Our team of skilled advisors will work hard to understand your situation and intentions for the future. Your advisor will match you with a lender based on their criteria and suitability. They will only suggest the most appropriate option, and will provide all the information you need to make an informed decision.
Why use Commercial Trust for your buy-to-let mortgage application?
Finding the most suitable mortgage takes time, whether you are new to buy-to-let investment or a seasoned landlord.
With Commercial Trust, you get more than mortgage advice. We take a holistic look at all the financial solutions available and recommend a product tailored to your requirements. Our service is end to end, so your advisor will support you right up until the day of completion.
Our advisors are experts in the buy-to-let market. They can help investors in complex situations, including those who have been turned down elsewhere. They have a detailed knowledge of lender criteria and know where best to place your application to ensure the best chances of success.
Read our UK landlords’ guide for 2017 and beyond
Make sure you stay up to date with the latest changes in buy to let so you can continue to invest your money wisely.
The guide helps you navigate and understand the changes that haveand will affect the buy-to-let market.