Buy to let mortgage guide
Buy to let mortgages are used to fund rental property purchases. You can secure a buy to let mortgage as an individual, or through a limited company. Our expertise spans the entire buy to let spectrum.
Buy to let mortgage rate table
Understanding buy to let mortgages
Buy to let mortgages are offered by high street banks, building societies and specialist buy to let lenders.
There is a great choice of mortgages available, more than 45 lenders provide buy to let mortgages and the products offered between them number in the thousands.
Specific buy-to-let mortgage types:
Useful mortgage tools:
How much can I borrow?
Buy to let mortgage lenders use the rental income of a property to calculate how much they are prepared to loan you.
Personal income is not always as important for a buy-to-let mortgage, as it can be with a residential mortgage.
Buy to let lenders may or may not impose a minimum income threshold on mortgage applicants. We work with both lenders that do and those that do not impose a limit.
Buy to let mortgage deposits
Experienced landlords can secure a buy to let mortgage of up to 85% of the property value, this is referred to as having a 'loan to value' (LTV) of 85%.
New landlords can take out a buy to let mortgage of up to 80% of the property value (80% LTV).
Calculating deposit amounts from the loan to value
85% LTV (15% mortgage deposit): Property value x 0.15 = Deposit amount
80% LTV (20% mortgage deposit): Property value x 0.20 = Deposit amount
75% LTV (25% mortgage deposit): Property value x 0.25 = Deposit amount
Larger deposits tend to result in lower buy to let mortgage rates. This is because the risk to the lender reduces the more the mortgage applicant invests of their own money.
The lowest buy to let mortgage rates commonly require a 50-60% deposit.
A high LTV means a low deposit. Buy to let investors looking for low upfront costs may find this beneficial. However, bear in mind that where the lender takes on a greater risk, the buy to let rates available tend to be higher.
The different types of buy to let mortgage rates
Buy to let mortgage rates can be fixed, tracker or variable.
Fixed buy to let rates commonly have an initial rate, or ‘deal’, period. During this initial rate period, the rate of repayment will be the same, regardless of any fluctuation in the wider market.
The buy to let tracker is linked to another rate of charge, if the rate being tracked goes up or down, so does the rate of repayment.
Variable buy to let rates are similar to trackers, however, the rate will track another for the entire term of the mortgage, rather than over an initial rate period.
Initial rate periods are typically 2-, 3- or 5 years in length, sometimes even 10-years. If you change your buy to let mortgage within an initial rate period, Early Repayment Charges (ERC) often apply. This is because the lender loses the income from the interest they would otherwise charge.
Yield from buy to let investment
Buy to let is a form of investment; which means the intention is to make money from it. Yield describes the income returned from an investment, in this case, a buy to let property.
You can calculate buy to let investment yield in different ways.
Buy to let gross rental yield
Buy to let yield can be calculated simply, from the monthly rent and property value:
Example (for illustrative purposes only)
(Monthly rent x 12 months) ÷ property value at purchase = Gross rental yield
(£1200 x 12) ÷ £200,000 = 7.2% gross rental yield
Buy to let net rental yield
A more realistic picture of rental yield can be calculated if you also know your other monthly costs (e.g. letting agent fees, insurance, property maintenance, accountant):
((Monthly rent – monthly costs) x 12 months) ÷ property value at purchase
((£1200-200) x 12) ÷ 200,000 = 6.00%
Actual return on investment from a buy to let property is subject to a number of factors and your personal circumstances. Seek professional financial advice if you are unsure of your position.
Capital growth and negative equity
Within this industry, capital growth describes when a buy-to-let property increases in market value.
Return on investment may also be derived from any capital growth from your property, in addition to rental income.
Capital growth from buy to let can be accessed by remortgaging to release some of the capital, or if you sell.
Conversely, negative equity is when a property depreciates in value beyond the amount borrowed. If you were to sell a buy to let property at this point, you would have to find the outstanding money elsewhere.
The property market commonly flows in cycles over a number of years.
To maximise the likelihood of a return on investment from capital growth, bear in mind that buy to let is a long-term investment strategy.
Buy to let capital growth is more likely to occur over a period of several years. This will best account for interim fluctuations in the property market.
Can I rent a property to my family?
Tenants of a buy to let property must not be family members. If you are renting to a family member, you will need a residential mortgage product, let us know this is the case and we will direct your enquiry accordingly.