Buy to Let (BTL)
What You Need to Know

In this buy to let guide:
​​

• Why invest in a buy to let?

• How much can be borrowed?

• Rental cover calculations​​

• Choose the right product

• Consider 'Top Slicing'

• Find a high yielding property

• Personal name vs limited company

• How can we help?

Why invest in a buy to let?​

​

Investing in buy to let properties allows for a steady rental income, which is often greater than inflation and mortgage repayments. Furthermore, the property may appreciate in value over time, so a significant profit can be made when it is sold in the future. Buy to let mortgages are often necessary to allow investors to take advantage of this opportunity.

​

There are many lenders out there with a range of BTL mortgage products and criteria which need to be analysed to determine suitability and value for money. Some lenders work entirely on rental income, others can include clients income to supplement rent. 

 

Rate fees, penalties and rental coverage all add up to a minefield before you consider whether the property is acceptable and the amount of deposit required. With specialist mortgage advice, we will ensure that you get the best mortgage product.

​

How much can be borrowed?

​

If the property has a rental income of £1000 per month, the calculator will produce a loan of between £175,0000 and £275,000, dependant upon the length of fixed rate. Many choose a 5 year rate to maximise borrowing. The other significant factor is the amount of borrowing as a percentage of the property value. Whilst 80% of the property value is available, 75% provides a better rates. The less you borrow, the lower the rate..

 

It is important to discuss your deposit with your advisor as you may be able to reduce your rate by only increasing your deposit by a small amount.

​

Rental cover calculations

​

These vary from lender to lender and expert advice is needed to evaluate the options lender look at borrowers tax band and available income to service the mortgage. They also consider the product requested and the loan as a percentage of the property value. Specialist knowledge and computer systems are helpful in negating these calculations. 

​

It is important to find a lender with a favourable rental calculation. Every lender will calculate the maximum borrowing based on the rental amount. 

For instance, if you own a property or purchasing a property that can be rented out for £1000 a month - the maximum borrowing will be based on the £1000 a month. However, not every lender has the same approach to this calculation. Also, it depends on a number of factors, such as your tax band and the lender's stress rate. 

High street lenders will offer a better rate than specialist lenders, however they will normally add a 2% stress rate to their rental calculation, which will cap your lending. Many landlords are struggling to borrow 75% - 80% LTV in the current market. Therefore, many are choosing to go with lenders that will not apply a stress rate. 

If you are a higher rate or additional rate tax-payer, many lenders will reduce your maximum mortgage amount as the property income will be subject to a high rate of tax (relative to a basic rate tax payer). We have lenders that will not alter their rental calculation - even if you are a higher / additional rate tax payer. 

​

Choose the right product

​

The type of mortgage product is very important when calculating the maximum mortgage amount. Although a shorter term product, such as a two year fixed rate or two year variable rate could be more attractive (as rates are expected to reduce in the coming years), a 5 year fixed will likely enable you to borrow more. This is because there is a stress test applied to a shorter term product or variable product as payments could increase over the next 5 years. 

It is also important to consider the product fee. Many lenders will charge their product fee as a percentage. 

 

A lender will often offer products with lower rates and high fees, and vice versa. For instance, a lender may offer a product with a 5% interest rate (with a product fee of 2%) and another product with a 4% interest rate (with a product fee of 5%). You will be able to borrow more using their products with higher fees and a lower rate, but it will typically end up costing you more over a 2 or 5 year period. 

​

Consider 'Top Slicing'

​

Most lenders will only consider rent when determining your mortgage affordability. However, there are some lenders that will also consider your personal circumstances. If you could afford to borrow extra and you meet the lender's minimum income threshold (typically £40,000 household income), you may be able to boost your borrowing.

​

Find a high yielding property

​

If you are struggling to borrow enough, you may want to consider finding a new property. The market rental amount depends on a number of factors, such as location, size of the property, number of bedrooms, etc. the value of the property doesn’t always correlate to the rental amount. Student lets, HMOs and MUFB tend to fetch higher a rental compared to standard lets. 

​

Personal name vs limited company

​

If you are a higher rate or additional rate tax payer, you may want to consider purchasing a property in a limited company rather than in your personal name. It is almost always possible to borrow more through a limited company compared to buying in your personal name, and often there are tax advantages of using a limited company. However, the interest rate tends to be higher when purchasing in a limited company. 

​

How can we help?

​

We have been operating for a long period of time and so have a huge amount of knowledge on these rules and criteria of lenders. This means we can find a mortgage on your behalf, especially if you are finding it difficult to do so. In addition to this, we will get you very competitive rate. 

​