So you are looking for the best buy to let mortgage deal? Of course, you are…and rightly so! Just be aware there are several factors that need to be considered when looking for the best buy to let mortgage deal. Below is a comprehensive guide and points to consider:
Individual circumstances matter if you want the best buy to let mortgage deal:
Whether you are an experienced landlord or looking to take your first steps onto the buy to let ladder, you should be aware of the benefits of leveraging your money by putting down the smallest amount possible and borrowing someone else’s (in other words the banks and getting a buy to let mortgage). However, the selection of products, fees and options available can sometimes seem confusing.
If you don’t, getting a buy to let mortgage is virtually (not totally) impossible because most lenders now require you to own your own home first.
Why your deposit matters if you want the best buy to let mortgage deal?
To get the best buy to let mortgage deal in the market, the more you can put down as a deposit, the better the deal. This means lower interest rates, lower fees, and lots more choice. However, as a general rule of thumb buy to let mortgages do demand a larger deposit than mainstream residential mortgages and they tend to be more expensive.
- As a minimum buy to let mortgages usually require at least 25% and in some cases less.
- Don’t forget lending rules and criteria can always change. In broad terms, the more you put down the better it will be.
- The rental achieved on the property is often the driving force in terms of the deposit that is required. Check out our helpful calculator on our buy to let page to give you a guide of how much you can borrow.
The importance of the rental figure for the best buy to let mortgage deals:
When trying to find the best buy to let mortgage deals, there are other variables to consider and which can complicate matters? Here are a few points to consider:
- You might have a deposit but if the rental figure is not enough for the buy to let mortgage it could mean having to put down more!
- Usually, buy to let mortgage deals demand that the rental figure be at least 125% of a notional interest rate that individual banks work too. Sometimes lenders will base this calculation on the rate of the deal, however, this is not the norm. This can easily catch people out when assessing options.
- Is the rental figure realistic for the buy to let mortgage? This will be checked by an independent surveyor who values the property for the buy to let lender. Not only are they assessing the property to ensure it is adequate security but also (and unlike residential mortgages) they will assess the income potential on a buy to let basis. So when you do get a figure of the rent that is achievable, just make sure it is realistic, otherwise, it could be an expensive mistake.
Fees for the best buy to let mortgage deals:
Arranging Buy to Let Mortgages is usually more expensive than residential mortgages due to lots of different reasons. Here are some of the reasons why:
- The interest rate reflects the fact it is a business and a little niche! Remember not everyone has a buy to let and so it is a little specialist.
- The fees that the buy to let mortgage lenders charge are also higher, for the same reasons.
- The size of your deposit can make a big difference in the costs of buy to let mortgages, both in terms of the rates, but also fees. In short, the more you can put down, the cheaper it’s likely to be.
- Of course don’t forget the more niche (limited company buy to let, HMO, holiday let etc) type of buy to let, the more expensive it will be.
Keep in mind this is a buy to let mortgage, not a residential mortgage. It is a business and hopefully a great asset, income generator and a way to secure your future. However, if you make the wrong choice with your buy to let investment or mortgage, it could be a costly mistake.
Income assessment for the best buy to let mortgage deals:
Some of the best buy to let mortgage deals demand a tighter set of criteria and potentially more hoops to jump through! Here are some points to consider, but bare in mind that lending criteria changes, so don’t take it as ‘read’, that a blog written a little while ago will still be correct. So here are some general thoughts:
- A minimum income on either a joint or individual basis may be required to get the best deals.
- But don’t forget, some buy to let mortgage lenders require no minimum income. However, like I said criteria does change, so this might or might not still be correct at the time you read this!
- If a buy to let lender does have an income requirement, it is important to check if certain elements of income are allowed to be used. For example, sometimes certain benefits can also be considered when assessing income, such as child benefit.
As I said, lenders are always changing their criteria which means, their rules last month, might be different this month! Always work with your buy to let mortgage broker and keep ahead of the game.
In other words, you might still need to evidence your income, even if it was only a £1!
What type of deal is best if I want the best buy to let mortgage?
When trying to find the best option, inevitably there is usually a choice between different mortgage products and terms. The key is to consider; what are you trying to achieve and what your particular situation is!
From this, a specialist independent buy to let mortgage broker (like us) will be able to assess the best buy to let mortgage product and term that best suits your needs. There is no one size fits all as everyone’s circumstances are different. Is it best to buy through a limited company, get a fixed rate, tracker or something flexible? It will depend on understanding you, which is why working with an advisor not only will help now. But help you plan for the future, which if you are looking to invest in property, is invaluable for any investor.
In other words a two year fixed rate is cheaper than a five year fixed. And a tracker is usually cheaper than a fixed, so hopefully, you get my point! But this is only a guide and an indication. Sometimes, you get fixed rates cheaper than trackers! And who’s to say in the future that a 10 year fixed won’t be cheaper than a 1 year fixed, by the way, I’ve never seen a 1year fixed…but you get my point! You can never assume what is or was correct in the past, will be in the future!
The bottom line is; seeking independent advice from a buy to let mortgage broker can help to get the best buy to let mortgage for you. They will be able to work with you and plan a strategy. This might help if you are looking to dip your toe in for the first time or even if you are an experienced landlord and investor.
Are there any age restrictions for the best buy to let mortgage deals?
Buy to let mortgages are treated completely differently to a residential mortgage for your home. For a start, it is unregulated, which essentially means you have far less consumer protection as it’s an investment property. As a result, the rules and lending criteria for buy to let are different and in some cases more flexible. So when it comes to age criteria here are a few points:
- There are fewer age restrictions.
- You can have a term which can go past your retirement age and potentially past 100! But don’t forget lending rules are not static and can change! Have I said that already!
- Just because you aren’t working in the typical sense, doesn’t generally restrict an investor by age.
How to get the best buy to let mortgage deal:
Just like any business, there are many other areas to consider. But these pointers should really help not only find the best buy to let mortgage, but also help your property investment business:
- Seek professional advice from a specialist buy to let mortgage broker. I would say this of course, but it is the truth. The market is dynamic and you can’t be expected to keep your finger on the pulse of the mortgage world unless you are a broker yourself.
- Speak to a reputable accountant to see if your tax status will be affected. (August 2018 update – now also consider Limited company buy to lets).
- Certain mortgage costs on the buy to let mortgage can be offset against tax (August 2018 update – tax changes have changed).
- Interest only buy to let mortgages are possible, but consider what your long term plans are and how you intend to pay the loan back. Capital appreciation used to be the game, but is still the best option? It will depend on what your personal plans and ambitions are.
- Usually, most buy to let mortgages require the property to be let on an assured shorthold tenancy (AST). To get a mortgage on a holiday Let, HMO, limited company, can be a little trickier, but certainly not impossible. Speaking to an experienced mortgage broker is essential.
- Buy to let mortgages are very specialist, and although your bank might have one or two products, the likelihood is these will not be competitive against Buy to Let specialist lenders who you probably have never heard of.
- Don’t forget the insurance on the building will have to be a specialist landlord policy. A normal home insurance policy will not protect your asset. Sometimes, people who decide to rent their home, forget about changing their insurance policy!
Other areas of interest for buy to let mortgage deals:
- For developers, experienced property investors or even someone looking for the right opportunity, there are now refurbishment products for buy to let mortgages. These are perfect if a property is usually not mortgageable in its current state but requires a little work.
- Let to buy – looking to let out your main home and buy a new one – be very careful when doing your research as there are multiple areas which need to be considered. Not least how your buy to let mortgage could affect your onward purchase. Ask your mortgage broker if you are unsure how this might affect you.
Hopefully, that has given you some food for thought when considering how to get the best buy to let mortgage for your future investment.
The key things to remember are:
- Make sure you have a good deposit.
- Check the rental figure carefully.
- Focus on why you are buying the property.
And most definitely, speak to a specialist Buy to Let Mortgage Broker and use them as part of your team.