- A buy to let mortgage: How much you can apply for?
- How much of a BTL deposit is required
One of the most important aspects for property investors is to ask, ‘How much deposit do I need to buy a property to let?’
Unfortunately, there is no straightforward answer since a lot depends on your personal financial circumstances and how much money you have available.
However, having said that, you’ll find that most buy to let mortgage lenders will be looking for:
a minimum deposit of 25% of the investment property’s purchase price.
Again, there are no set rules and you may find a BTL mortgage lender willing to accept 15%, while others may accept 20%. These are very rare – and the days of becoming a landlord with a zero-deposit mortgage are long gone.
You may also find that, depending on the lender’s criteria, they may require a deposit of between 30% and 40%.
It’s at this point we should highlight you should seek the right interest only buy to let mortgage so you should speak with a specialist mortgage broker who will understand the market and help you find the deal with the lowest deposit required.
A buy to let mortgage: How much you can apply for?
Research is key when it comes to understanding how much you can access on a BTL mortgage – you will need to appreciate that the most you will be allowed to borrow will be related to how much you will earn in rent.
Mortgage lenders want to see a rental income that is more than the mortgage payment will be every month.
Firstly, your own tax status will determine how much this will be, according to the Bank of England’s Prudential Regulation Authority guidelines.
This means that a basic rate taxpayer will need a monthly rental income from their investment property that equates to 125% of their mortgage.
For a higher rate taxpayer, they will need 145% and a top rate taxpayer will need 160%.
So, for example, if you wanted to borrow £200,000 with an interest rate of 5.5%, then this will cost you £917 per month.
As a basic rate taxpayer, the property will need to generate a rental income of £1,146, and for a higher rate taxpayer, the figure is £1,330. For a top rate taxpayer, the income figure is £1,467.
Your deposit on an investment buy to let property
As you can see, trying to determine how much your deposit on an investment buy to let property can become complicated.
And if the property is not generating enough in rent to cover the mortgage requirement, then you’ll need to look for a mortgage lender willing to include your personal income towards the payment – this is called ‘top slicing’.
Consider a bridging loan
For those who may not have a lot of cash to hand as a BTL deposit, then you could consider a bridging loan.
You will need to think carefully before doing this because bridging loans are a type of short-term finance but they are appealing for those potential landlords who want to move quickly and secure finance to buy a property at auction or to pay for refurbishment costs, for example.
There will be bridging loan lenders interested in offering a loan to meet your deposit requirements, so you should speak to a specialist broker in this instance.
Be aware that bridging loans will cost more than High Street lenders offer and the amount will need to be paid in 12 months, though some lenders offer terms of 24 months.
A builder’s deposit
Another potential route for those property investors without the cash to put down as a deposit is to consider a builder’s deposit since some lenders see being acceptable to meet their deposit requirements.
Put simply, this is a deposit for a home on a development of new-build properties – these offers are popular since the builder pays the deposit.
You should appreciate that most lenders will not accept a builder’s deposit as a mortgage deposit because they will need you to put up your own money for the deposit instead.
The bank of Mum and Dad
If you don’t have the cash for a deposit, but you have a close relative who does, for example, your parents, then there are buy to let mortgage deals available for what’s known as ‘concessionary deposits’ or ‘gift deposits’.
This means that the deposit has been presented by a non-relative or gifted from a family member.
Again, a potential BTL mortgage lender will look closely at where the money has come from and for a deposit that has been gifted from a family member, then it needs to be from immediate family such as your parents, grandparents, a spouse, siblings or even a child.
For those who are not immediate family members, then a gifted deposit could be accepted and the list of those who meet the terms will include friends and cousins, for example.
The concessionary deposit is also worth investigating. This may see a parent or grandparent selling a home to you as the BTL investor but with a discount and it’s this equity in the property that may be accepted as the deposit by the lender.
Alternatively, you could use a personal loan as a BTL mortgage deposit, but you will not be able to finance the entire deposit but only up to 5% of it. Again, you will need to look at the criteria of the lender before exploring this avenue.
How much of a BTL deposit is required
Essentially, for anybody asking, ‘How much deposit do I need to buy a property to let?’, then the answer is straightforward: you will not find a buy to let mortgage lender willing to accept a zero deposit and your circumstances and finances will determine how much of a BTL deposit is required, but you really should focus on stumping up at least 25% on your potential property investment cost.