A Guide to Buy-to-Let

Note* Caldecott Property are not Financial Advisors, we can refer you to a trusted Mortgage Consultant for support.

What is a Buy-to-Let Mortgage?

A buy-to-let mortgage is a type of loan designed for those looking to purchase a property to rent out rather than live in. If you don’t own the property outright and intend to rent it out, you’ll need this specific type of mortgage.

Lenders offer deals for both first-time landlords and those who become landlords unexpectedly, but the rules can be complex. Understanding the basics can help you navigate the options available.

Key Features of Buy-to-Let Mortgages

Since buy-to-let mortgages are considered higher risk, lenders impose additional conditions, including:

• Homeownership Requirement: Some lenders require you to already own a property, either outright or with a mortgage.
• Good Credit History: A strong credit score and manageable existing debts (e.g., credit cards) are essential.
• Minimum Income Requirement: Many lenders expect an annual income of at least £25,000 (excluding rental income). Those earning below this may find it harder to secure a mortgage.
• Age Restrictions: Most lenders have an upper age limit, typically around 75, though some may have lower limits.
• Deposit Requirements: You’ll usually need at least a 25% deposit, as most lenders require a 75% loan-to-value (LTV) ratio.
• Rental Income Expectations: Lenders assess affordability based on expected rental income, which should cover at least 125% of your mortgage repayments. For instance, if your monthly mortgage payment is £800, your rental income should be at least £1,000 per month.

Looking to improve your credit score before applying? Read our guide on how to improve your credit score and check it for free.

How Do Buy-to-Let Mortgages Work?

Most buy-to-let mortgages are interest-only, meaning you only pay the interest each month without reducing the loan balance. While this keeps monthly payments lower, you’ll need a strategy to repay the loan at the end of the term.

Interested in the differences between interest-only and repayment mortgages? Our guide, Ways of repaying an interest-only mortgage, explains everything you need to know.

Switching to a Buy-to-Let Mortgage as an Accidental Landlord

Some landlords don’t set out to rent properties but become landlords due to circumstances such as inheriting a home, moving in with a partner, or relocating.

If you have a standard residential mortgage and decide to rent out the property, you must inform your lender. Failing to do so could invalidate your mortgage.

• Some lenders may allow you to rent under a ‘consent to let’ agreement.
• Others may require you to switch to a buy-to-let mortgage.

What If My Lender Won’t Change My Mortgage?

If your lender refuses ‘consent to let’ or won’t allow you to switch, remortgaging with another provider may be an option. Be mindful of any early repayment charges if you switch before your current deal ends.

Where to Get a Buy-to-Let Mortgage

Buy-to-let mortgages are available from major banks and specialist lenders. Consulting a mortgage adviser can help you find the best deal for your circumstances.

Keep in mind:

• No single comparison site provides every available deal, so check multiple sources.
• Look beyond interest rates—consider fees and other costs.
• Research the type of mortgage that best suits your needs before making a decision.

Planning for Periods Without Rental Income

There will likely be times when your property is vacant or tenants miss payments. To safeguard against financial strain:

• Set aside a portion of your rental income in savings.
• Prepare for major repair costs, such as boiler replacements or plumbing issues.

Don’t Rely on Selling the Property to Repay Your Mortgage

It’s risky to assume you’ll be able to sell the property at a profit to repay the mortgage. If house prices fall, you may struggle to sell for the amount you expected, leaving you responsible for any shortfall.

Understanding the Tax Implications

As a landlord, you’ll earn rental income, which is subject to Income Tax. You must declare this income through a Self Assessment tax return.

• Deductible expenses include letting agent fees, maintenance costs, and Council Tax when the property is vacant.
• If you sell the property for a profit, you may owe Capital Gains Tax (CGT).

For more details on tax allowances and obligations, visit the GOV.UK page on Capital Gains Tax.