Buy to Let

Whether you’re an established landlord or it’s your first time, we’re here to help

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Taking the hassle out of building your property portfolio

Property is a popular investment for the future and we’re used to helping our clients plan their extra retirement income or obtain capital growth through property. Whether you’re looking to purchase your first investment property or expand your portfolio, your Caenstone advisor will talk you through the options available to you.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Some buy to let mortgages are not regulated by the Financial Conduct Authority

Our step by step guide on
how it all works

Start
Find out how much you can borrow

Put bluntly, it depends on what you can afford.

A buy to let purchase differs from a residential purchase in that the estimated rent will be a driving factor as to how much can be borrowed as well as an applicants earnings and commitments.

That’s why we start with a review of your current finances, and we talk you through the various costs of buying a property. Before you start browsing the property pages, you need to know your budget, including how much deposit you should have available.

We will let you know what documentation is required.

Step 1
Get a Mortgage in Principle

A mortgage in principle is not a guarantee, but it does show that a lender is willing in principle to financially support your property purchase.

When you start viewing properties, this makes you look like a serious buyer.

Step 2
Start house hunting

Know what you’re looking for (including your must-haves, nice-to-haves, and deal-breakers).

Then you need to know where to look, including websites, estate agents, property developers, and auctions.

Step 3
Contact your mortgage broker

As soon as you’ve found your perfect place, put in an offer and wait for it to be accepted.

Contact us to let us know and we’ll start to get the wheels in motion for you.

Step 4
Find a solicitor

You’ll need a solicitor to take care of the legal work involved in purchasing a property.

1) They understand the property sale and purchase process

2) They handle the various pre-purchase searches so that there are no surprises

3) They take care of the contracts

4) They will register the property in your name

Step 5
Apply for a mortgage

Now it’s time to get back in touch with your mortgage broker lender and make a detailed mortgage application. You won’t necessarily apply to the lender you have the agreement in principle with, your adviser will assess the most suitable options available at the time of application.

Step 6
Get a valuation

As part of the application process, the mortgage lender will carry out an independent valuation and survey of the property.

The minimum requirement is a ‘basic’ or ‘mortgage’ survey which is a relatively simple price appraisal, but you have the option to go for a more detailed survey that examines the building’s structure and flags up any possible long-term issues.

The bank’s surveyor will appraise the property value and also the expected rental amount that could be achieved in the current market.

Step 7
Receive a mortgage offer

Following the lender’s credit check, an examination of your financial details, and valuation of the property – and assuming everything is okay in that it falls within their lending terms and conditions – they will offer you a mortgage.

Step 8
Exchange contracts with the seller

Exchanging contracts usually takes place 7-28 days before the date of completion (when the property becomes yours!) and involves the lawyers on both sides confirming that both seller and buyer are ready to proceed (for you as a buyer, that usually means the mortgage offer has been issued, having a signed contract, transferred deposit funds and a buildings insurance policy is in place.

Step 9
Move into your new home

Once contracts have exchanged and completion has taken place, you’ll be given the keys and you can secure a tenant to move in.

Step 10
Complete

Helping to find you the right mortgage

We deal with a wide network of lenders offering some of the best mortgages on the market

Talk to an expert advisor today
020 3909 9585

Too busy to talk now? Find a convenient time for you Arrange a callback

Commonly asked questions

Why use a mortgage broker?

A mortgage broker will have access to a wide range of lenders and will help you choose the most suitable mortgage for your situation.

It is our job to make the process as hassle-free as possible. We liaise with the lender and your solicitor, complete the paperwork, and are available to guide you through the specifics and answer any questions that arise.

How is ‘new build’ classified?

Different lenders have varying criteria as to which properties are defined as ‘new build’. A common definition is a property that has been built, converted or refurbished within the last two years;  often including properties that have not been occupied since being built.

It can often be more restrictive to secure a mortgage on a new build property. However, most lenders are prepared to lend at a higher loan to value rate (LTV) on a new build house than on a new build flat.

What is the maximum age I can take out a mortgage?

There is no blanket maximum age for applying for a mortgage – most lenders have their own age limits.

Usually, the maximum age at the end of the mortgage term is 75 or your intended retirement age, whichever is sooner. It’s not impossible to get a loan that goes beyond this age limit, but most options require you to provide proof that you can repay the mortgage when it extends into your retirement.

Some lenders will lend to clients up to age 80, using salaried earnings. And some will lend beyond that upon proof of a pension that can cover payments at 80+.

What type of mortgage should I choose (fixed vs. variable)?

It depends on what type of mortgage suits your circumstances and plans best.

Fixed

As it says on ‘the tin’, your rate of interest is fixed or guaranteed not to change for a defined period (typically 2, 3, 5 or 10 years) regardless of changes to the Bank of England base rate. This type of mortgage gives you certainty, allowing you to budget effectively. They usually carry an early repayment penalty so it’s important to consider how long you wish to fix for (see the info on ‘porting’). The longer the fixed period, the higher the interest rate is likely to be; effectively paying for protection against any market rate changes.

Variable

The interest rate on a variable mortgage moves up and down, usually in response to the UK economy. An advantage of this type of mortgage product is that it’s often more flexible, with lower or no exit fees.

Variable mortgages fall into three categories: tracker, standard variable, and discounts.

Tracker – The rate tracks an economic indicator, most commonly the Bank of England base rate or LIBOR. It will be pegged above the indicator it is tied to by a fixed margin for the product term, typically two years or for the lifetime of the loan.

Standard variable rate – This is the rate you will typically move onto after finishing an initial structured rate. Each lender manages their own SVR, often following the Bank of England base rate but not necessarily. They can range from 2% to 5+%. There are no exit penalties for an SVR mortgage.

Discount – These products offer a discount against a lender’s standard variable rate for a defined period, typically two or three years. However, there is no guarantee that a lender will move their SVR down if the BBR rate goes down. Discount rates often don’t carry exit penalties.

Can I borrow on an interest-only basis?

Yes.

However, certain conditions would have to be met (especially relating to how you plan to pay off the loan at the end of the mortgage term, the mortgage size, level of deposit, etc.) and these can differ from lender to lender.

These kinds of conditions can make a big difference to how much you can borrow and under what conditions – it’s important to discuss these options early with your mortgage broker.

What is top-slicing?

Top-slicing is a term to describe how a lender can take into account your earned income and commitments, as well as the rental income from the property, when calculating how much they are prepared to lend you. This may allow greater leverage on lower-yield rental properties.

What documents will I need to provide?

Though the documents you need to show will depend on your individual circumstances, generally speaking, you need the following depending on whether you are employed or self-employed:

All

  • Passport
  • Proof of address, dated within the last three months (e.g. a posted bank/credit card statement, utility bill, annual council tax statement, driving licence, etc.)
  • Proof of deposit or gifted deposit letter (purchase application).

Employed

  • Most recent three months’ payslips + two years’ bonus/commission payslips (if applicable).
  • Most recent three months’ personal bank statements, showing salary, mortgage or rent, utilities, and direct debits.

Self-employed

  • Most recent two years’ HMRC tax calculations & tax year overviews; and/or
  • Most recent two years’ signed trading accounts (limited company).
  • Most recent three months’ personal & business bank statements, showing salary, mortgage or rent, utilities, and direct debits.
What’s the difference between capital repayment and interest-only?

These are the two main ways to repay your mortgage. With capital repayment, each month you are paying off a portion of the loan, the amount you borrowed, so that by the end of the mortgage term, you’ve paid it all.

With interest-only repayment, you’re just paying back the loan interest each month. The monthly payments are lower but you will need to have an acceptable repayment strategy. This maybe investments, equity in a property, lump-sum payments or even selling the property and downsizing.

How much can I borrow for a BTL property?

The maximum you can borrow typically depends on the amount of rent the property can generate. Mortgage lenders usually want the rent to cover between 125% and 145% of the mortgage. What’s more, when making this calculation, instead of using the interest rate on the mortgage, most lenders use a ‘managed rate’, which is usually between 3.5% and 5.5%.

Alternatively, some lenders have a minimum income requirement – typically £25k – but there are lenders that do not.

Also, some lenders may take your earned income and commitments into account, on top of the rental income, in order to lend more on a lower yielding property – this is known as ‘top-slicing.

What does it mean if a property is HMO?

“HMO” is a house in multiple occupation, meaning it is rented out to at least three people from different ‘households’ (i.e. they’re not a single family) but share facilities like the bathroom and kitchen.

This type of rental property requires a dedicated specialist mortgage and as the landlord, you may be required by the local authority to have a licence.

If there a minimum income for BTL?

Although some lenders have no minimum income, some require at least £25k. Requirements vary from lender to lender.

Should I buy through a limited (LTD) company or special purchase vehicle (SPV)?

Some landlords find an advantage in buying via a limited company or what’s known as a ‘special purchase vehicle’ (basically, a limited company whose purpose is to buy and rent properties). It’s worth seeking specialist advice due to the following factors:

  • Interest rates on LTD company mortgages can be higher compared to a mortgage taken out by individuals.
  • The same level of stamp duty will normally apply, regardless.
  • The mortgage costs, including interest payments, are tax-deductible for an LTD company landlord.
  • For an LTD company, rental income attracts corporation tax instead of income tax. Depending on current tax rates, this can be beneficial.
What is a ‘portfolio landlord’?

A portfolio landlord has four or more buy to let mortgaged properties.

A ‘portfolio’ mortgage application is a more involved process. The lender will assess the whole portfolio to ensure that the applicant will be able to afford the repayments.

Can a first-time buyer buy to let?

It is possible but options are limited. Most lenders insist that an applicant already owns a property before they are prepared to lend to them on a buy to let basis.

What is the minimum deposit for BTL?

The minimum deposit is usually 20% – but more lenders come to the market at 25%.

What is a regulated BTL mortgage?

A regulated BTL mortgage is used when the property is to be rented to an immediate family member.

The majority of lenders will refuse a mortgage on a property to be rented to a family member because of the risks involved should it come to repossession. There are lenders willing to offer a regulated mortgage for this type of arrangement.

What type of tenancy agreement is acceptable for a BTL mortgage?

Most BTL mortgage lenders are expecting rental to be based on an assured shorthold tenancy (AST) which lasts for a minimum term of six months, and a maximum of two years. Other tenancy types should always be checked with the mortgage lender upfront to establish whether they are acceptable.

What's the difference between a holiday let mortgage and a buy to let mortgage?

A holiday let mortgage allows you to let the property on a short-term basis. A buy to let mortgage, on the other hand, is more appropriate when you’re expecting to let the property on a more long-term basis (typically 6-12 months).

This difference affects the lender’s calculations. In other words, if the property isn’t going to be let out all year round, the rental income will fall and rise seasonally. That said, some short-term lets offer a higher yield and, depending on the circumstances, it is possible to borrow more on a holiday let mortgage than it would be on a buy to let.

Lenders of a holiday let mortgage are also likely to allow personal use of the property, unlike a buy to let mortgage.

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Expert advice and guidance is essential, and we lay out the whole process – step by step and jargon-free – in our complete mortgage guide for first time buyers.

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020 3909 9585

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Important Information

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. The typical fee that we charge is £250. We may charge a higher fee for more complex cases. Caenstone is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority. Caenstone, 40 Bank Street, London, E14 5NR.