Buy to Let Mortgage Guide for Putney Landlords

If you are looking to invest in property to rent out in Putney, there is a good chance that you will require a buy-to-let mortgage to enable you to purchase the property, unless you have the financial means to buy it outright.

Alternatively, you might be looking to rent out a property that you live in and currently have a residential mortgage for, in which case, you would need to switch to a buy-to-let mortgage.

Applying for a buy-to-let mortgage differs in many ways compared to a standard residential mortgage, so if you are considering taking out a buy-to-let mortgage, here is everything you need to know.

What is a buy-to-let mortgage?

A buy-to-let mortgage is a loan that allows you to buy a property to rent out, rather than living in the property yourself. The amount that you are allowed to borrow will usually depend on the projected rental income, typically based on average rent prices for similar properties in the area.

Why get a buy-to-let mortgage?

The main reason people get a buy-to-let mortgage is if they want to invest in property and rent it out. The terms of a residential mortgage do not usually allow for you to rent the property out, so you would be in breach of the mortgage conditions if you rent out a property with a residential mortgage. A lender can charge a penalty, demand full repayment of the mortgage or even repossess the property if they discover the mortgage contract has been breached.

Another reason that someone may require a buy-to-let mortgage is if they decide to rent their residential property out. For example, if they buy another property to move into or move in with a partner or family member. In this situation, a new buy-to-let mortgage will be needed to replace the residential mortgage.

The only exception is if the renting arrangement is only intended to be temporary. This could be if the homeowner moves away for work for a few months and wants to rent the property out for a short period before moving back in.

In this case, some mortgage lenders may provide a ‘consent to let’ to allow the property owner to rent out the property under a residential mortgage. Usually there will be a fee to pay for this of around £100 to £300.

Buy-to-let vs. Residential mortgage

The key differences between a buy-to-let mortgage and a residential mortgage are:

• Interest-only – The majority of buy-to-let mortgage products are interest only, which means you will not be repaying the capital, just the interest on the loan.
• Higher deposit – Lenders will usually require a higher deposit amount compared to a residential mortgage, Typically, you will need to pay a deposit of at least 20-25% of the property value.
• Higher interest – Interest rates tend to be higher for buy-to-let mortgages. Mortgage rates can be 1-3% higher than for residential mortgages.
• Arrangement fees – Some lenders charge high arrangement fees for buy-to-let mortgages, which can be up to 7% of the loan amount.
• Affordability – As buy-to-let mortgages are considered a higher risk, the affordability criteria are stricter. As well as having a good credit history, the projected rental income will need to be around 125% to 150% of the mortgage loan to help ensure you can afford the mortgage payments.

Are buy-to-let mortgages more expensive?

Yes, buy-to-let mortgages are more expensive in terms of interest rates. However, if you are only paying off interest and not capital, the monthly payments will be lower than what you would pay on a residential mortgage. When the mortgage ends, landlords would then need to repay the capital loan or find an alternative type of refinance.

You will also need to pay a higher deposit amount when taking out a buy-to-let mortgage and may have higher arrangement fees. With buy-to-let mortgages, another cost to be aware of is capital gains tax, which you may need to pay when you sell a second property.

How much deposit for a buy-to-let mortgage?

The deposit amount required will depend on the product and lender, but the minimum amount of deposit is usually 20% and some lenders may request a 40% deposit. If the property is in an area where it is difficult to predict rental market, a higher deposit will usually be required to offset the risk.

How to change mortgage to buy-to-let

If you want to rent out the property you have been living in, you will need to arrange to switch to a buy-to-let mortgage. When switching from a residential mortgage to a buy-to-let, you will need to have a significant amount of equity in the property.

The first option is to use the lender that you already have your residential mortgage with, but you may get a better mortgage deal with another lender.

Compare the available buy-to-let mortgage products or contact a specialist buy-to-let mortgage broker. There may be an early repayment charge if you are in a fixed mortgage term, which is why it is usually best to speak to your existing mortgage lender first.

Once you have found the product you want, you apply for the new mortgage and if accepted, your new mortgage lender will arrange for your existing mortgage to be repaid.

Can first-time buyers get a buy-to let-mortgage?

Yes, it is possible for first time buyers to take out a buy-to-let but the affordability criteria will be stricter than for applicants who have owned property before. Credit history will be thoroughly reviewed, and a minimum income level is usually required. First-time buyers may also need to pay a bigger deposit of 25-40%.

How many buy-to-let mortgages can I have?

There are no rules around the maximum numbers of buy-to-let mortgages you can have but some lenders apply a limit to reduce the risk. Some lenders may set a limit on the amount you can borrow or have a limit of 2-5 for a landlord property portfolio.

If you are considering buying a property to rent out, we can help you to find rental property investment opportunities. We also offer property management services for rental properties, so contact us today to find out more.