Everything you need to know about buy-to-let mortgages

Embarking on the journey of becoming a landlord is exciting and with the right buy-to-let mortgage, you can turn property investment into a rewarding venture.

This comprehensive guide will navigate you through the essentials of securing and managing a buy-to-let (BTL) mortgage, helping you make informed decisions every step of the way.

In this article, we cover:

• What a buy-to-let mortgage is
• The difference between a buy-to-let and residential mortgage
• Who can get a buy-to-let mortgage
• Choosing the right property to let
• Mortgage repayment options
• Different types of mortgages
• Conveyancing and legalities
• Valuations and surveys
• Fees associated with buy-to-let properties
• How to secure your investment
• Prepare for your tenancy

Understanding buy-to-let mortgages

Firstly, it's crucial to understand what sets BTL mortgages apart from standard residential mortgages.

So, what is a buy-to-let mortgage?

A BTL mortgage is a loan specifically for those who are buying property as an investment to let out to tenants, and not to live in themselves. It’s different to a residential mortgage, which is used to buy a home for you to live in.

How does a buy-to-let mortgage differ from other mortgages?

Typically, BTL mortgages require a higher deposit than a mortgage for the property you intend to live in. To get a BTL mortgage you usually need a deposit of around 25% of the property's value, and it comes with different age limits and lending criteria. It's important to consult with a mortgage consultant, who can provide tailored advice based on your circumstances and the lender's criteria.

Who can get a buy-to-let mortgage?

The criteria for BTL mortgages tends to be a little stricter than residential. For example, your lender may make it a condition that you already own a property, whether outright or with an outstanding mortgage. You will also need to have a good credit record. You may also have to provide evidence of income, typically around £25,000+ a year. Lenders also have a maximum age requirement, which is usually around 75 years of age.*

Now that we’ve touched on some of the essential aspects of what a BTL mortgage is and who can apply for one, we’ll take a closer look at the main decision points you will have to take action on after deciding to become a landlord.

Choosing the right property

Finding a property that appeals to a broad range of tenants is key to a successful investment. Consider the property's suitability for your target tenant demographic and the potential rental yield. Services like free rental valuations and our Help to Find service can assist in making an informed choice.

Repayment options

Deciding on a repayment method is another significant consideration. You can opt for a capital repayment mortgage, where you pay off the loan over time (including interest), or an interest-only mortgage, where you pay just the interest and need a solid plan to repay the loan at the end of the term. This plan is called a repayment vehicle and you should seek advice from a financial advisor to determine the suitability of your chosen repayment vehicle.^† Each repayment method has its benefits and risks, which your mortgage consultant will explain to you.

Mortgage types and features

There's a variety of BTL mortgage products to choose from, including fixed-rate, standard variable rate (SVR), and base rate tracker mortgages. Some landlords also consider limited company BTL mortgages due to potential tax benefits. Understanding the nuances of each type will help you find the mortgage that best fits your investment strategy.

Remember, whatever your mortgage choice, it's essential to understand all the terms and conditions. Mortgage decisions are significant, and professional advice can be invaluable.

Conveyancing and legalities

Conveyancing is an essential part of the property buying process, involving legal transfers and searches. Opting for a comprehensive conveyancing service can simplify this complex stage, offering benefits like 24/7 case tracking and fixed legal fees. To find out more about conveyancing, click here

Valuations and surveys

Your lender will require a mortgage valuation to confirm the property's worth. You may also consider additional surveys to assess the property's condition, which can be arranged through your lender or our Surveying Services.

Understanding fees

Securing a BTL mortgage involves various fees, including lender arrangement fees, booking fees, and legal fees. Here’s a brief snapshot of what each entails.

• Lender arrangement fee – paid to the lender for arranging your buy-to-let mortgage
• Booking or reservation fee – usually charged upfront, it reserves the buy-to-let mortgage you have been offered while your application is being processed
• Broker arrangement fee – some brokers charge an arrangement fee and your consultant will explain any fees payable in your initial appointment.
• Legal fees – costs incurred by your conveyancer for the legal work required for a buy-to-let mortgage
• Valuation/survey fee – pays for the valuation/survey carried out on the property
• Administration fee – payable to the mortgage broker for handling all the administration on your buy-to-let mortgage and insurance applications
• Stamp Duty – this is a one-off fee that buyers have to pay the Government on properties worth over a certain amount. In Scotland, stamp duty is called Land and Buildings Transaction Tax, and in Wales, it’s called the Welsh Land Transaction Tax. Depending on the property value, you may be exempt from stamp duty, particularly if you’re a first-time buyer. We can tell you about this, or you can check the Government website for current thresholds.

It's important to discuss these fees with your mortgage consultant to fully understand the costs involved in securing your mortgage.

Securing your investment

Insurance is a vital aspect of protecting your investment. Buildings insurance is mandatory from the point of contract exchange, and you may want to consider additional coverages like contents, life, and income protection insurance.

Note that buyers in Scotland are required to have buildings insurance before a tenant’s date of entry.

Preparing for tenancy

Once you've secured your BTL property, it's time to think about finding and managing tenants. Many letting agents, like us, can handle everything from tenant sourcing to full property management, ensuring your investment is well taken care of.

Investing in a BTL property is a significant decision that requires careful planning and consideration. By understanding the mortgage options, legal requirements, and management aspects, you can set yourself up for a successful and profitable venture as a landlord. Remember, our team of mortgage consultants is here to support you throughout this journey, offering expert advice tailored to your unique situation.

For more detailed information or to discuss your specific needs, please contact your local branch to talk to an independent mortgage advisor.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE

Countrywide Mortgage Services is a trading name of Countrywide Principal Services Ltd which is authorised and regulated by the Financial Conduct Authority (Firm Registration Number 301684). Registered Office: Countrywide House, 6 Caldecotte Lake Business Park, Caldecotte Lake Drive, Milton Keynes, MK7 8JT. Registered in England no. 01707341. MS/CW/7331/03.24