If you are searching the market to find the best lenders for buy to let mortgage and want to know who is offering the best rates and deals, then this article will help.
Firstly, it may be helpful to explain what a buy to let mortgage is – it is a loan that is aimed specifically at those who want to buy an investment property and rent it out to tenants.
Buy to let mortgages, they are also known as BTL mortgages, are similar to residential mortgages and you will need a suitable deposit and a good credit rating to access them.
It’s always a good idea to compare buy to let mortgages between lenders and it’s also a good move to seek professional, independent financial advice, particularly from mortgage brokers.
In addition, most lenders will have a buy to let mortgage calculator on their website so it’s easy to see how much rental yield you should be expecting from your investment property’s value and for the expected rent.
Do you need a buy to let mortgage?
Unless you have the cash to buy an investment property, then you will need a buy to let mortgage to purchase a property that you will rent out.
It’s important to appreciate that you can only use a residential mortgage for a property in which you are going to live.
You will find that mortgage lenders will not offer a standard residential mortgage on rental homes because, they believe, there is a bigger risk involved with BTL lending than comes with standard residential lending.
It’s also important to underline that should you access a residential mortgage and then rent out your property, you will be breaching the mortgage contract. This means the lender could repossess your home or they could make you repay your mortgage in full.
However, you may become an accidental landlord without realising it.
The term accidental landlord is used to describe someone who may have inherited a property but cannot sell it and then decides to rent it out. This term also extends to those who may have a mortgaged property and decide to move in with a partner before renting their home out.
It’s important that if you do so, that you tell your mortgage lender about your change in circumstances.
Before looking at the market of the best providers of buy to let mortgages, you will need to understand the criteria being used for lending. You will need:
- The rental income must be at least 125% of the mortgage payment and this is sometimes referred to as being your ‘rental yield’
- For higher rate taxpayers, then you may need to generate 145% of the mortgage in rental income
- Most lenders have a £25,000 minimum income requirement
- There will be a need to raise a 20% deposit and sometimes up to 40%
- Some lenders have a minimum age for lending of at least 25
- Some lenders will insist you have previously held, or hold, a residential mortgage
- Some BTL mortgage products are only available to first-time landlords.
How to compare buy to let mortgages
It is important that rather than signing up to the first competitive buy to let mortgage deal that you see, that you compare BTL mortgage providers. You can do this by:
- Using an online BTL mortgage comparison site
- Speaking with a BTL mortgage adviser.
As with residential mortgages, this can become a complex subject since the lending criteria for BTL mortgages is different from residential mortgages.
Indeed, when comparing BTL mortgages, one of the important issues to take into account is the maximum loan to value, or LTV rate.
The LTV rate is the difference between how much deposit you are putting down and the property’s value.
So, if a lender insists on a maximum LTV of 75%, this means that you will need to stump up 25% of the property’s value as a deposit.
Which is the best buy to let mortgage?
The other issue when finding out who the best BTL mortgage lenders are is to consider which is the best buy to let mortgage available.
Put simply, the best mortgage is the one that’s right for you and your own circumstances. It should have:
- A competitive BTL mortgage rate
- Have no or low arrangement fees
- Be flexible to enable switching at a later date.
It may help in determining who the best buy to let mortgage lender is to consider some of the leading lenders. They currently include:
- Lloyds Bank
- Skipton building society
It’s also important to appreciate that there are other, less well known buy to let mortgage providers who are focused entirely on offering landlord mortgage products. They include:
And for anyone interested in a landlord’s buy to let mortgage, you will need to consider:
- Void periods: This term is for those times when no rent is coming in and you’ll need to meet your mortgage payment
- Do not rely on selling your rental home to repay the mortgage. If house prices have fallen, then you will be looking at paying the difference
- Be aware of the taxes you’ll need to pay, particularly capital gains tax should you decide to sell your buy to let investment
- You will essentially be running a business, so you will be liable for income tax and you’ll need to declare rent on your self-assessment tax return.
Best lender for buy to let mortgages
Essentially, it’s important that there is no single BTL mortgage lender who can be described as being the best lender for buy to let mortgages because they will each have their own lending criteria that will take into account your personal financial circumstances, the property you are buying and the rental yield that the property will deliver.
Lending criteria will differ between lenders, so you may find having a larger deposit means lower repayments and if you can’t afford that, then you will have to pay a higher rate and you may find that the market of lenders will be restricted because of this.