These mortgages which are for property investment, are designed for investors who want purchase property for the rental market.
Buy to Let (BTL) Lending Guidelines
Below are some of the main things investors will need to consider when approaching lenders.
BTL Deposits – a minimum deposit of 25% of the value of the property is the accepted norm.
BTL Payment Methods – traditionally, investment mortgages were taken out on an interest-only basis which meant that only the interest on the mortgage loan is paid each month while the original mortgage sum remained owing at the end of the mortgage period.This gave the investor two advantages, firstly the interest payments were low allowing the rental income to provide a positive return and secondly, property values traditionally rose and the property could be sold at the end of the mortgage term, leaving the investor with a substantial profit as the property would have been self funding over the period of the loan.
Today, it is much more common for investment mortgages to be offered on a repayment basis which means that each payment contains a mixture of interest and capital in a form that ensures that the mortgage loan reduces to zero over the mortgage term.
BTL Mortgage Lending Assessment – The major consideration lenders use in setting the amount of loan they will offer on a particular investment property is the valuers assessment of its rental value. Lenders now use fairly standard guidelines to establish if the expected rental income will be sufficient to cover the mortgage. Currently, capital and interest mortgages, known as repayment mortgages will be assessed at an arbitrary interest rate of around 5.5 percent to establish an arbitrary monthly mortgage payment. For that loan to be approved, the assessed rental income must be at least equal that figure multiplied by 1.45. Note that the arbitrary interest rate the lender will use has no relation to the actual interest rate that will used in your mortgage offer
Employment – as mortgages for investment property are based mainly on the potential of that property to generate enough income to pay the mortgage, the type of employment you have does not have the same importance as it does with normal residential mortgages.
Buy to Let (BTL) Purchasing via Limited Companies
Due to the changing tax considerations, many investors who hold a portfolio of BTL property are looking to shift them from their own private ownership into a limited company. For more information on this please refer to the limited company buy to let guide.
Buy to Let (BTL) Investing in Off-Plan property
Buying a property off-plan (buying before the property is actually built) has become a common choice for investors to enter into buy-to-let. Sometimes these investors manage to show a healthy paper profit as soon as the property has been built due to house price inflation. If this is your intention, please read our guide on buying off-plan as there are some important things to understand about their financing.
Buy to Let (BTL) Lender Survey Requirements
Your mortgage lender will always require a survey on any property on which it intends to lend. These surveys are often simply to establish the true market value of the property and will give only limited information on the actual condition of the property. With BTL property where it is intended to do some building work and upgrading or where the property is old, it can be sensible to arrange for a full structural survey which will give you a detailed report on the true condition of the property, prior to committing to purchase.
Buy to Let (BTL) Lending Regulations
BTL is considered to be a commercial activity and currently does not come under the remit of the financial conduct authority. What this means is that the normal protections that apply to residential mortgages are not applicable to mortgage products taken out for BTL property.