Buy-to-let refers to the purchase of a property specifically to rent it out. A buy to let mortgage is a mortgage loan specifically designed for this purpose.
With over 20 years experience providing professional mortgage advice we offer a down to earth, personalised service tailored to help you get the right advice for your situation. We’ll build a profile of you and what you want to achieve. We can then recommend the best options for your project and avoid avenues which aren’t suitable. Contact us today for your buy to let mortgage advice.
Fact Finding
The first step would be to find out what you want in terms of funding, your basic goals and anything extra you might like some guidance with. This first step provides us with the basic information we require to make sure the work we do going forward is built on good solid foundations, and any quotes we give you are within criteria and should you proceed, will ultimately provide the funding that you are looking for.
Product Selection
Once we have an accurate picture of what you need together with the information you provided us with, we will now go back to our office and begin the process of sifting through the whole market of lenders and ‘crunching the numbers’ to find the deals which we believe would best fit you, the investment property and your preferences.
This stage is highlights the importance of our initial fact finding chat with you as it sets the path for us to obtain the quote designed to ‘fit’ your circumstances and the property that you are purchasing, taking into account what you want the finance to do.
After selecting a number of Buy-to-Let mortgage products and presenting them to you we will then discuss them with you to try and discover any questions or issues you may have.
Decision in Principle
After you have decided which mortgage quote to proceed with we then apply to the lender to see if they would be willing to make a DIP (Decision in Principle – This is a certificate or statement from a lender to say that they would be willing to lend a certain amount to you as the borrower based on some basic information.)
Assuming we get a positive decision, you then have your ‘Decision in Principle’. The decision can then be sent to an estate agent, for example, to help secure you the property you may be purchasing….
Application
The next step is to submit the full case to the lender together with your valuation fee (if there is one) and your supporting documents.
We don’t expect you to do anything here and we’ll take care of everything that’s needed, including liaising with estate agents, solicitors and vendors, whatever it takes to get the job done. It goes without saying that we keep you in the picture throughout, just let us know if you need anything else doing.
We’ll do whatever is needed to ensure we get the desired outcome for you – the mortgage offer.
Completion
If after we receive your mortgage offer it meets your needs, the next step is to set a date for completion. This is something that your solicitor will do in agreement with the solicitor working on behalf of the person selling the home you’re buying.
Upon completion of your property purchase a certificate of title for your new property must be presented to the lender who will then release funds to your solicitor to be passed on to the seller.
Building & Contents Insurance
Cheap insurance policies will likely only cover the basics and potentially leave holes in your policy, which could result in costs you haven’t accounted for. We’ll work with you to establish your exact needs to make sure you’re properly covered. Towards the end of the mortgage process, we’ll provide you with some building and contents insurance quotes. Why would you need insurance? Good insurance is worth it’s weight in Gold, as it will help to protect you from hefty costs if you have the need for major repairs if your property – has been damaged such as in a fire, flood or bad storms. In today’s market, it’s easy to get cheap insurance cover, however it’s often cheap for a reason. We’ll find you a high quality policy that fully covers you no matter your situation.
View more information on our Insurance page
Are you 'Whole of Market'?
Yes we are, but so are most brokers. What sets a great broker apart, is knowing their way around all buy to let lenders products and criteria with total confidence, appreciating who will accept what, and who won’t – seeing potential problems before they occur. Therefore how we use the tools at our disposal is what makes the difference.
We put in the hard work to find you the most competitive deal from the growing offering out there, and make sure we navigate the maze of criteria successfully for you.
Knowing buy to let inside out means we find you the right deal – and saves us having to backtrack to other lenders.
Are you FCA Regulated?
Yes.
We(Homeworld Financial Services) are fully authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 474011.
The Financial Conduct Authority does not regulate some forms of buy to lets.
See our full compliance details at the bottom of the page.
What info do you need from me to get started?
Nothing too personal ! Just basics about your situation, income, preferences, property to be purchased. We need it so that we don’t quote you mortgage deals you don’t qualify for, there’s lots of confusing criteria out there!
How long does it take to get fully approved?
A mortgage offer tends to take between 1-3 weeks from application submission depending on the lender.
If you feel the ‘need for speed’, we can avoid any slow coach lenders and recommend only those that can meet your deadline. Definitely needed where repossession purchases are concerned for example…..
We’ve never believed in the old saying “no news is good news”, because in this business it isn’t – we push things through as quickly as possible for you, unless of course you wish us to slow things down for your own reasons !
Is it difficult to get a buy to let mortgage in the current market?
Lenders are tightening their criteria, yes. Stress test are tightening with changes in December 2015, and lenders are becoming more sensitive to overall mortgage debt in the background, long gone are the days of a £25k salary enabling the ability to build a large portfolio regardless, but that’s been the same for a long time.
There are some obvious caveats to getting a landlord mortgage, you’ll generally need a very good credit history, a decent deposit or equity of between 15-25%, most (but not all) lenders require a minimum income, say £20k to £25k but this can be joint in some cases. And your property must generally rent for a minimum of 125% of your monthly interest at a given rate, usually 5%-5.5%, although this can differ.
It is a case of marrying you up with the right lenders who can help given your circumstances, so you need a specialist who knows the right places to look, can find the best schemes, knows the lenders criteria back to front and has the dedication to push it through from start to finish.
Now more than ever, you need to partner with a broker who is serious in this market.
What’s the maximum age for a buy to let?
Well generally the mortgage can run up to age 75, but we do have mainstream lenders that will allow up to age 85 where needed, and some options with no maximum age provided the mortgage starts before your 70th birthday – although as you’d imagine that’s less common.
How many buy to lets can you have?
This varies from lender to lender, some lenders are concerned with how many mortgages you have for other buy to lets (background limits), others not so. It’s a case of us finding out what you currently have portfolio wise, and recommending a lender that is happy with that scenario, all lenders have black and white rules regards this.
Also, in terms of how much any one lender will advance to you, again it varies, with some it depends on your credit score, others may only be happy with 3 in total.
Put it this way we do have options to get around this issue, however, lenders are becoming increasingly sensitive to large portfolios and smaller personal incomes. So it may become problematic for those with ten+ properties across a spread of lenders.
I've found a property which I can buy for less than its true value, can I use that discount as my deposit?
Its a common question, but in short the answer is, no. Unless you’re buying from a close family relative.
But for a standard transaction, lenders will lend on either purchase price or value, whichever is the lower, they therefore want to see a true deposit from yourself.
So if you’re buying for £75k, but you think the property is worth a tad more – your contract price will still be £75,000, and you can borrow a percentage of that figure, nothing more, of course you’d use your own funds as a deposit. You can’t utilise any discount as a deposit. The exception is a builders gifted deposit which a small amount if lenders allow.
You may be able to remortgage further down track on a more open market value, however, its unlikely you’ll get such an uplift without renovating the property in some way to help support the higher valuation.
A Quick Guide to Buy to Let
As an income investment for those with enough money to raise a big deposit buy-to-let looks attractive, especially compared to low savings rates and the unpredictability of other investment options.
Investors can make money this way by generating an income via the rent charged (so long as it’s more than the monthly mortgage repayments), making a capital gain when they come to sell or, in many cases, both.
But, like all investments, there are risks attached to buy-to-let. For example, you could be hit by rising interest rates, stuck with difficult tenants or unable to sell if the housing market changes.
Here we have put together a quick guide for getting into the Buy to Let(BTL) property market
A great mortgage broker is one of your most valuable assets throughout the process of you purchasing Buy to Let properties, often being the make or break element in making a success of your journey. We are here to get find you the best Mortgage deals and guide you through the process smoothly, to be asked as many questions as you can about anything that you wish to know and what we will do for you.
You certainly need a competent solicitor who will look at all legal aspects of the property and take care of your best interests. You’ll be spending tens maybe even hundreds of thousands so you absolutely need to make sure you get it right, so choose carefully. Make sure your solicitor is an excellent communicator as this is our biggest client gripe, not knowing what’s happening. If others in the transaction are uninformed of your progress – that could be a big problem.
If you are just starting out in buy-to-let, buying a property close to home could be a good bet. As well as being familiar with the area, you can be close by if anything goes wrong. However, if you plan to use a letting agent to manage the property, buying somewhere further afield can present a wider range of options.
The very first question to ask yourself about buying in any area is whether it’s financially viable.
- Can you afford to buy the type of property you need in that area?
- What’s the competition and demand in the area like?
- Are the average rents in that area (on similar properties) high enough to produce an acceptable yield?
Once you’ve cleared the finances on paper, you should dig down into some detailed market research.
Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live?
You need to match the kind of property you can afford and want to buy with locations that people who would want to live in those homes would choose.
These questions might sound overly simplistic, but they are probably the most important aspect of a successful buy-to-let investment
Ultimately, the property you buy and where, is likely to come down to what is financially viable. As a buy-to-let investor, you will either be relying on capital growth (medium to long-term increase in the value of the property) or solid rental returns (income generated from the property expressed as a percentage of the property value). You’ll need to work out which of these has the bigger advantage.
For example, if your initial costs are so big you are unlikely to attain a high rental yield, you will be depending on property prices rising. If, on the other hand, you are buying a cheaper property to rent out to several students, you will be relying more on the rental yield.
A good rental yield is generally benchmarked at around 5% a year. Some properties might reap yields as high as 7%, while HMOs can achieve between 12% and 15%.
A Quick Buy to Let Guide
Being a landlord comes with certain legal responsibilities. Tenants must be assured that their deposit is in safe hands and that their rights to live in your property are protected by a tenancy contract.
There are several types of tenancy contract, but the most popular is an assured shorthold tenancy (AST). These contracts give tenants a legal right to live in the property for a fixed duration, or on a rolling term.
An AST lasts for a set period, normally six or 12 months. It will detail how much the tenant has to pay in rent, who is responsible for repairs, notice of eviction, when rent can be increased, how long the tenancy lasts and the tenant’s right to have their deposit protected. You can usually get AST templates quite easily online.
Deposit Protection Schemes are a legal requirement and you, or your lettings agent, will be fined if you don’t provide one. There are two types of government-backed deposit schemes, insurance and custodial.
Under the insurance scheme, the landlord or agent retains the deposit and pays interest to the insurer. They are available through the Deposit Protection Service, MyDeposits and Tenancy Deposit Scheme.
The custodial option, where the deposit is paid directly into the scheme and can earn interest, is free to use. Each scheme comes with an independent resolution service to iron out problems between landlords and tenants. More choice of these schemes became available from 1 April, 2016.
Get yourself certified! After you have purchased your property and after any renovations you may have carried out you’ll need gas and electric safety certificates as well as an EPC (energy performance certificate).
Other landlord responsibilities include:
- Making the property safe for tenants to live in
- Dealing with repairs to the property’s structure and exterior
- Maintaining heating and water systems
- Making sure furniture supplied by you meets fire safety regulations
- Ensuring that the gas and electrics are safe
How to work out the return on your Buy-to-Let Investment
Remember, if you are buying with a mortgage, rent-to-property price yield will not be the return you get.
To work out your annual return on investment subtract your annual mortgage cost from your annual rent and then work this sum out as a percentage of the deposit you put down.
For a £100,000 property that could rent for £500 per month, you would need a £25k deposit and roughly £2,000 in buying costs.
£75k mortgage at 5% interest rate = £3,750
£500 rental income x 12 = £6,000
Difference = £2,250
Deposit + buying costs = £27k
Annual return = 8.3%
Don’t forget maintenance costs and other landlord expenses such as rates and insurance will eat into that return.