Buy-to-let mortgages

The cost of a buy-to-let mortgage will depend on various factors, like:

• Your loan-to-value - The more you borrow, the more you’ll pay in interest, because interest is charged as a percentage of the loan amount. 

• Your interest rate - Your buy-to-let interest rate will determine how much interest you’re charged monthly. If you have a fixed interest rate, you’ll be charged the same amount each month, but your interest can change if you’re on a variable-rate mortgage. 

• Stamp Duty - If you already own one or more properties and you choose to purchase a rental property, you’ll face a stamp duty surcharge of an additional 3%. 

• Additional fees- Mortgages often come with initial fees, such as solicitor fees, arrangement fees and valuation fees.

The mortgage costs aren’t the only things you’ll need to account for if you become a landlord. Here are some other expenses to factor into your budget:

• Buildings/landlord insurance 

• Income tax on rental fees

• Letting agent fees (if you choose to use one)

• Maintenance costs

Most lenders will offer a maximum loan-to-value of 75%, meaning you’ll need to have a minimum of 25% of the property’s value for your deposit.

So if you wanted to buy a £400,000 house with a buy-to-let mortgage, you’d need to have at least £100,000 saved for the deposit. 

While it’s possible to find lenders who accept smaller deposits for buy-to-let mortgages, it’s not a common practice. This is because buy-to-let lending is generally perceived as riskier compared to residential mortgages. Lenders require larger deposits to mitigate the potential risks involved.

If you own the property without a mortgage, then yes, you can let your property. Most residential mortgages will have terms that specify you can’t let your home. If you wish to rent out a room or the whole property, you’ll need to get permission from your mortgage company. This is called ‘consent to let’. 

Failing to get permission from your lender before renting out your property could be considered mortgage fraud and could land you in trouble with your lender. Your mortgage company could demand that you repay everything you’ve borrowed in full immediately, or face having the property repossessed. 

If you have a buy-to-let mortgage, you are likely to find that the terms of your mortgage won’t allow you to live in the property. If your lender finds that you’re living in the property when you shouldn’t be, they could demand the mortgage repaid immediately.

There are not many lenders who offer buy to let mortgages to first time buyers. Some will not lend to you at all.

Those that do are likely to consider your gross salary when you apply for a mortgage.

The minimum is often around £25,000 and the lender will have certain rules.

As you do not already own a home, you do not have to pay the 3% stamp duty surcharge for investors and second homebuyers.

As you will not be living in the property you cannot get a first time buyer stamp duty discount.

In short, yes, first-time buyers can get a buy-to-let mortgage before a residential mortgage, but it can be complex, and there may only be a few lenders willing to offer you a mortgage. Those that do may ask for a larger than average deposit or charge higher interest rates. 

Investing in a rental property in a more affordable area compared to your current location can be a wise and cost-effective way to get on the property ladder. However, it's important to note that if you choose to purchase a rental property, you won’t be eligible for stamp duty relief or other first-time buyer incentives when you eventually seek a residential mortgage for your own home.

Owning rental property can come with tax implications, and you’ll need to consider these when deciding whether or not it’s worth the investment. 

• Income Tax - If you earn profits exceeding £1,000 from rental income you will be liable to pay income tax. However, you can reduce your taxable profits by deducting allowable expenses before calculating what you owe. If your rental profits surpass £2,500 per year, you must register for self-assessment with HMRC.

• Capital Gains Tax - When you come to sell a buy-to-let property, you may have to pay capital gains tax if the property has increased in value.

Stamp Duty Land Tax - You’ll not only need to pay the normal amount of stamp duty for the property value, but if you already own a property, you’ll need to pay an additional 3% of the property's value in stamp duty.

Yes, it’s possible to secure a buy-to-let mortgage through a limited company. This option can be advantageous if you’re a higher-rate taxpayer or aiming to be a full-time landlord, because there may be tax benefits associated with managing your property portfolio through a limited company.

Setting up and operating a limited company can be intricate and costly. While there might be tax advantages, it may not always result in a cheaper solution.

How much you’re able to borrow will depend on several factors, such as:

• Your deposit & LTV - For rental properties, you’ll typically need at least a 75% loan-to-value (LTV), meaning you’ll need 25% of the property’s value as a deposit. The more money you have available for a deposit, the more you can borrow, as long as you meet all other affordability conditions.

• The potential rental income of the property is the main aspect lenders will look at when considering how much you can borrow with a buy-to-let mortgage. Most lenders require the property to have a potential rental income of at least 125% of the monthly mortgage payment.

Some lenders will also consider your other income and outgoings when determining how much you can borrow and most buy-to-let lenders will want you to have another source of income.

Theoretically, there’s no limit to the number of buy-to-let properties or mortgages you can have. However, lenders may have their own limits. 

Some providers will limit how many buy-to-let mortgages or the total amount they will lend you. This doesn’t mean you can’t use more than one lender, but some may restrict how many BTL mortgages you can have with other lenders to be eligible for their products.