Buy To Let

MORTGAGE

Advice

Searching for your first mortgage is a stressful time, our team of mortgage brokers can assist you in finding the perfect first mortgage.

Buy to Let Mortgages

Increasingly, the idea of owning an investment property is becoming more appealing to first time buyers and existing homeowners alike. However, there is more to purchasing a rental property than meets the eye, particularly when it comes to arranging a buy to let mortgage. This is not to say that it’s impossible however, we have provided the below breakdown on what to be aware of when purchasing a buy to let (BTL) property.

Am I eligible for a buy to let mortgage?

The key criteria for a BTL mortgage is to ensure that the property is not being used for residential purposes, and that the rental income is sufficient enough to cover the mortgage payments. A lender will typically require the rental amount to be at least 125% (or 145% if you are a higher rate taxpayer) of the mortgage payments, and often assume an interest rate of anywhere from 3-5.5% (depending on length of fixed term). This is called the interest coverage ratio (ICR) and will ensure you will not fall short of covering your mortgage and other associated costs should your interest rate increase. There are some lenders out there who can use what is called ‘top slicing’ or supplementing any shortfall from the rental payments with your own income if the rental figure will not hold up against these stress tests.

Another factor which is integral to obtaining a buy to let mortgage is to ensure you have at least 25% of the purchase price saved for your deposit, as most lenders will not budge on this front. Most buy to let mortgages will typically be arranged on an interest-only basis, meaning your monthly payments only consist of the interest on the loan. At the end of the mortgage term, the balance of the mortgage will still need to be repaid in full, however BTL mortgages are also available on a repayment basis if this is preferred.

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Do I need an income to purchase a buy to let property?

A common misconception is that you don’t need an income when purchasing an investment property, as the rent will cover the costs. This is not necessarily true as most lenders will require there to be some level of income in order to consider the case. Whilst affordability is often not a factor, most lenders have a minimum income level (typically around £25,000) which they will need evidence of which can be demonstrated through your payslips or tax calculation documents if you are self-employed.

Can I get a buy to let mortgage if I am a first time buyer?

Lots of first time buyers find the idea of their first purchase being an investment property appealing, as it’s a great way to earn some additional income and can act as a worthy investment for the future, by selling the property further down the line (assuming the property has increased in value). However, lenders are generally more cautious about lending to first-time landlords, due to the added risk carried by the borrower being an inexperienced landlord. This can potentially lead to more rental void periods, which is where the property is unoccupied and therefore bringing in no rental income.

Whether you’re a first time landlord or an experienced portfolio landlord, here at Pinnacle we have the expertise to find the buy to let mortgage which most suits your needs. Book a call today to discuss your needs further with our expert brokers.