How easy is it to get a Buy to Let mortgage these days? And what the options?
It’s a question I get asked a LOT.
And after placing hundreds of mortgages for UK business owners, over the last 12 years – in this week’s blog, I’ll share everything you need to know!
We’ve spoken before about rental property. And whether it could be a good source of passive income and part of your retirement planning (if you missed that post – here’s where you can read it). {Hyperlink to https://peacetogether.co.uk/blog/is-it-still-worth-investing-in-buy-to-let-property/}
We came to the conclusion that Buy to Let can be a great option, as part of a portfolio of investments and providing you also have a source of easy-to-access funds elsewhere.
For most people, buying a property is going to involve using a deposit that they have saved, along with a mortgage to fund the balance of the purchase price.
But in reality, just how easy is it to get a Buy to Let mortgage right now?
Lots of factors affect which mortgage might be appropriate for you. When the time comes, you’ll want to get some professional advice to make sure you get the correct product from a reputable lender (which can save you SO much time, money and hassle down the line – not least in failed applications!).
Rules changed a few years back – in January 2017 and were phased in during that year. So whereas you used to be able to borrow 75% (or more) of the property value, now you may well find this is NOT the case.
Why?
Lenders now base the amount you can borrow on the rental income your property will bring in…NOT the value of the property itself.
They’ll allow for the interest rate on the mortgage to go up – and periods when your property is empty, too.
Each lender works it out differently. Depending on how many properties you own; the length of the fixed rate of the mortgage and other factors they choose.
If you fix your mortgage rate for 5 years or more, you might get offered more money.
The right Mortgage Adviser will know which lender to use, to present your case in the best light (based on your specific personal circumstances). So you don’t end up wasting time and money applying to lenders who are unlikely to ever accept your case.
And if you’re a higher rate taxpayer (so now get a higher rental tax bill), you might find you get offered less or if you own 4 or more properties.
So how much CAN you borrow for a Buy to Let mortgage?
Typical stress rates range from 3.98-5.99% and multiples from 120 to 140 x monthly rental income.
Let’s break that down!
A ‘stress test’ is basically the process lenders use, to assess the whether the loan is affordable in the long run.
It’s required by law (after the 2008 credit crunch) and is supposed to protect both you and the lender, from entering into risky mortgages that aren’t sustainable.
Lenders calculations of how much you can borrow use a multiple of an ‘interest rate stress figure’.
So even if your mortgage is on a 2-2.5% interest rate, it’s likely the lender will calculate it using a much higher figure (the stress figure). Which is typically 3.98-5.99%, as I said earlier.
Here’s some examples.
If we take the typical multiples of 120 x 140 monthly rental income:
- This can mean that for a rent of £700 per month, you could get a mortgage of £97,000 – £175,000
- Or for £1,000 a month rent, a mortgage of £138,000 – £251,000.
These figures do NOT allow for property values.
So if your rental income is £1,000 a month, the maximum you can borrow is £251,000.
Even if the property is worth £300,000 or more – which means you may need a much bigger deposit in some areas of the country than others.
If you’re wondering where in the UK Buy to Let works best, this is a huge factor to take into account.
Because it tends to mean you’ll need a far higher deposit for Buy to Let property in the south or London, as property prices are SO much higher, compared to the rental income you can expect to bring in.
If I can help you take the next step and get some clarity about what type of Buy to Let mortgage you could get – I’m here to help!
I know it seems like another expense to add to the list. BUT a good whole-of-market Mortgage Adviser (which I am) will save you much more than the investment you make in their services.
Here’s where you can book a call in my diary now, to talk through your plans.
Buy to Let isn’t an always an easy thing to navigate (especially now and especially if it’s your first investment property). So do get in touch – I’d love to help!
Until next time,
Claire