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CONSIDERING A BUY-TO-LET MORTGAGE?

Here’s what you need to know if you’re starting out


A BUY-TO-LET MORTGAGE is a unique loan designed specifically for individuals investing in property to rent out. It differs from a residential mortgage, primarily used for purchasing a home. In this article, we delve into the intricacies of buyto-let mortgages to help you determine if this kind of investment is right for you.


BORROWING LIMITS ON A BUY-TO-LET MORTGAGE Unlike its residential counterpart, a buy-to-let mortgage considers the property’s prospective rental income. Generally, lenders require the rent to be at least 125% of the monthly mortgage payments (based on interestonly repayment). So, if your mortgage costs £800 per month, you’ll need to charge at least £1,000 in rent.


THE DEPOSIT REQUIREMENT FOR A BUY-TO-LET MORTGAGE As with any mortgage, the larger the deposit, the more competitive deals are available. Usually, lenders expect a deposit of around 25% or more of the property’s value. However, some may accept a minimum deposit of 15%, provided the rental income covers it.


THE IMPORTANCE OF A TENANCY AGREEMENT IN A BUY-TO-LET PROPERTY Private landlords renting out a property serving as the tenants’ home typically need an Assured Shorthold Tenancy (AST) agreement. Mortgage lenders insist on an AST and may request a copy during application. For more information on tenancy agreements, visit the GOV.UK website.


“Lenders expect a deposit of around 25% or more of the property’s value. However, some may accept a minimum deposit of 15%, provided the rental income covers it.”

PROPERTY TYPES THAT MAY POSE CHALLENGES FOR A BUY-TO-LET MORTGAGE Lenders evaluate each property individually for suitability and safety. They often impose restrictions on newly built flats, ex-local authority properties, high-rise flats, flats above commercial premises and holiday homes. Expert advice is crucial in navigating these restrictions and finding suitable lenders.


FIRST-BUYERS AND BUY-TO-LET PROPERTIES Yes, first-time buyers can invest in buy-to-let properties, but their mortgage options may be limited. Lenders may require first-time landlords to own their residential property for a certain period or any property, including another buy-to-let property, while residing in rented accommodation.



UNDERSTANDING HOUSES IN MULTIPLE OCCUPATION (HMO) An HMO is a property rented by several household tenants, sharing facilities like toilets, bathrooms or kitchens. Depending on the property and location, an HMO licence may be necessary. Contact your local authority to determine if your property qualifies as an HMO and if a licence is required. Getting a mortgage on an HMO property may be limited, but obtaining professional mortgage advice can help you find suitable lenders.


>> ARE YOU CONSIDERING APPLYING FOR A BUY-TO-LET MORTGAGE? << Before proceeding, ensuring you meet the leading eligibility criteria is essential. Have a conversation with one of our mortgage advisers. Speak to Omni Finance – telephone 01424 236903 – email simon.hickman@omnifinance.co.uk


HIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.


The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results. The Financial Conduct Authority does not regulate tax advice, Inheritance Tax planning, estate planning, or Will writing.


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