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This is your quick go-to guide for everything you need to know about the Buy to Let mortgage application process.
Speak to a Mortgage Advisor.
We can guide you through the process one step at a time - We specialise in helping our clients arrange their Buy to Let mortgages and can assist in the whole application process.
Step 1: Finding the right property
If you are looking to buy your first Buy to Let investment property, your needs will be very different to that of an experienced landlord.
First Time Landlords
Look for a house, rather than a flat - flats are often problematic because there are other owners to consider in the block. Even if you have a share of the freehold, consensus from the other free/lease holders is required for most work you may wish to undertake. Noise complaints are far more common from flats and the other leaseholders may not be keen that you are renting your flat out!
Look for properties that won't require much maintenance - Victorian properties look the part but can often have problems that require a lot more maintenance than a newer house. Damp, roof defects, guttering and wooden windows can all be costly things to repair. You could find yourself with a maintenance list that just doesn't get any shorter and no profit at the end of the year.
Go for 3 bedrooms - if your budget will allow, a 3 bed property will always do better than a 2 bed. 2 bed properties tend to attract young couples as tenants, which can lead to shorter tenancy periods, more rental voids and less respect for your property. 3 bed properties attract more established families, who are more reliable and more likely to stay in your house for longer.
Check out the location - wherever you are buying, there are going to be areas that are more attractive than others. Homes that are in densely packed areas, with schools and amenities nearby are also going to be easier to rent than properties that are a little off the beaten track.
Experienced Landlords
Flats can have a high yield - although flats can be problematic when dealing with the other owners in the block, they can offer excellent rental yields to the more experienced landlord. Other flats, in the same block, can also become available over time. Buying a whole block of flats can also offer excellent investment opportunities. Call us for more info.
Look for properties that need work - Most experienced landlords have refurbished a property or 2 in the past and therefore buying somewhere that needs work doing to it can be highly profitable for adding value, not only to the value of the flat, but also the amount of monthly rent that can be demanded.
Consider Houses of Multiple Occupancy (HMO) - a House of Multiple Occupancy is a property that offers shared facilities to multiple tenants, with typically, small living and sleeping areas. Although monthly rents are cheaper, per tenant, as a collective, the amount received tends to be considerably higher than if the whole building was let to one family. BEWARE: regulation around these properties is stringent (you will need a specific HMO License, tenancies will be shorter and maintenance costs will be high.
Step 2: Do your sums
Buy to Let mortgage lenders have strict rental affordability calculations that can restrict the amount you are able to borrow - often by a lot more than expected. BEWARE: if you are a higher rate tax payer, you won't be able to borrow as much as a lower rate taxpayer - this is due to the income tax relief changes effecting the interest payments on Buy to Let mortgages.
Here is an example of how one of the mainstream lenders (The Mortgage Works) works it out:
• £250,000 - Purchase price
• £1,000 - Monthly rental income
---
• £183,908 (73% LTV) Max. Buy to Let mortgage (higher rate tax payer)
• £192,384 (77% LTV) Max. Buy to Let mortgage (lower rate tax payer)
All Buy to Let lenders have affordability calculators on their sites that you can use to check your figures, or you can call us on 01424 440410.
Step 3: Calculate the Rental Yield (5%+)
The Rental Yield is the return you make (or expect to make) on a property you either own or are thinking about buying. Buy to Let property owners and landlords use Rental Yield to measure the value of their investments - it's an important calculation.
Here's how to work out the Rental Yield:
Annual Rental Income / Value or Purchase Price x 100.
As a rule-of-thumb the rental yield should be 5% or above. The example in Step 2 gives a Rental Yield of 4.8% - so on the cusp of what is deemed an acceptable return.
Step 4: Get your mortgage sorted
Once you have done your sums and know roughly how much you are looking to buy for and what deposit you have, it's time to sort out your mortgage. There are many factors to consider when choosing the right Buy to Let mortgage. Many lenders place restrictions on things like exposure limits (how many Buy to Let properties do you own), flats above commercial premises, non-standard construction types, social housing exposure, income requirements, home owner status, etc.
Once your mortgage application has been submitted, you can expect a mortgage offer within 2-4 weeks.
We specialise in helping our clients build and manage their Buy to Let portfolio mortgages - give us a call on 01424 440410.
Step 5: Exchange, complete and get the tenants in!
Completion will take, on average, 8-12 weeks - depending on the solicitors and also the sellers own circumstances i.e. is their a related onward purchase that could hold things up?
Once you have completed, it's time to get the tenants in their and start making some money.
We are the Buy to Let Mortgage Experts
We can find and help you arrange your mortgage...it's what we do!
Different Buy to Let Mortgage Lenders offer different maximum loan amounts. Here's how you should do your research.
Speak to a Mortgage Advisor.
Find out how much you can borrow in 2-mins - Our technology give us access to 15k+ mortgage rates that allows us to find your perfect mortgage in a minutes. We specialise in arranging Buy to Let mortgages for our clients and can guide you through the application process.
How much you are able to borrow depends on your income, tax status and the rental income
Buy to Let mortgage lenders have strict rental affordability calculations that can restrict the amount you are able to borrow - often by a lot more than expected. BEWARE: if you are a higher rate tax payer, you won't be able to borrow as much as a lower rate taxpayer - this is due to the income tax relief changes effecting the interest payments on Buy to Let mortgages.
Here is an example of how one of the mainstream lenders (The Mortgage Works) works it out:
• £250,000 - Purchase price
• £1,000 - Monthly rental income
---
• £183,908 (73% LTV) Max. Buy to Let mortgage (higher rate tax payer)
• £192,384 (77% LTV) Max. Buy to Let mortgage (lower rate tax payer)
All Buy to Let lenders have affordability calculators on their sites that you can use to check your figures, or you can call us on 01424 440410.
Do some research - try different mortgage lenders.
All the Buy to Let mortgage lenders have online affordability rental calculators, that will give you an accurate [maximum] mortgage amount you are able to borrow. You simply enter the purchase price and rental income income of the property you are looking to buy and the calculator does the rest - most take no longer than 2 minutes to complete. Try a few and see who is prepared to lend you the mortgage you need.
Poor Credit - We have options.
We specialise in helping people with poor credit arrange their Buy to Let mortgages. The rate you pay and the maximum mortgage amount available to you depends on the severity of your credit.
The worse your credit history, the higher the rate you will pay and the smaller the maximum mortgage amount will be.
We are the Buy to Let Mortgage Experts
We can find and help you arrange your mortgage...it's what we do!
Getting your documents together at the start of your Buy to Let mortgage application will really speed things up for you. Here's a handy list.
Speak to a Mortgage Advisor.
Let us go through your mortgage documents - we understand what the lenders are looking for when going through your documents and can spot any potential problems, well before they get put in front of an underwriter.
Proof of Identity:
Passport
Driving License
Proof of Address:
A gas or electricity bill dated no later than 3 months
Last 3 months bank statements
Proof of Income
[employed] Last 3 months payslips
[self-employed] Last 3 years Tax Computations (SA302) & Tax Year Overviews
[both] Last 3 months bank statements showing salary credits
Yes you can. When applying for a Buy to Let mortgage (with a poor credit history) the rule of thumb is - nothing within the last 3 months. Anything outside of that and you have options.
County Court Judgements (CCJ)
Defaults
Missed/Late Payments
Pay Day Loans
Bankruptcy (discharged)
IVA (Individual Voluntary Arrangement)
DMP (Debt Management Plan)
If you have had any or all of the above and want to buy a house under the Governments Help to Buy scheme, give us a call to help you arrange your mortgage.
If you are looking to buy a property with the intention of letting it out, and you don't have the funds to buy it outright, you're going to need a Buy to Let mortgage. You can borrow a maximum of 80% of the value of the property you are looking to buy. Therefore, if you are buying for £250,000, you can raise £200,000 with a Buy to Let mortgage and your deposit would be £50,000.
Buy to Let mortgage lenders regulate how much they are prepared to lend by using rental affordability calculators. If you are a lower rate tax payer the amount of monthly rental income, the above property would need to achieve, would be £1,000. If you are a higher rate tax payer the rental income would need to be £1,200. This is due to the changes in mortgage interest tax relief from residential property income.
The vast majority of Buy to Let mortgages will require you to have tenants in the property on a 6-month Assured Tenancy Agreement. It is your responsibility to ensure that the rents are paid and any shortfalls, or non payments, are your responsibility.
The key points:
20% - Min. deposit required
Interest Only Acceptable
Can be used towards retirement planning
Excellent returns on investment
Finding the right Buy to Let property can be the difference between making or losing money. If you are new to the Buy to Let world it advisable to go for a newer, low maintenance property. Older properties (100yrs+) may look the part, but they tend to go wrong, which is costly.
Look for low maintenance properties
Find somewhere near to local amenities
2-3 Bed houses rent well to families
Flats can be problematic
Buy to Let mortgage lending is less strict than residential lending because the emphasis is on the rental income the property will receive - rather than a multiple of your annual income.
There are options for most circumstances out there and we have access to Buy to Let mortgage lenders who have no minimum income requirements.
Here's the right process to follow when applying for your Buy to Let mortgage:
Research the area you are interest in
Carry out your rental affordability calculations or speak to a qualified mortgage advisor
Find a property that meets your criteria
Find a solicitor to deal with the conveyancing (we can recommend one)
Submit your mortgage application.
Start the process of finding a tenant
Mortgage offer issued (approx. 14 days after application)
Exchange and complete
Tenants move in
First Time Landlords
GOV.UK - Restricting finance cost relief for individual landlords Click Here
TMW - Rental Income Calculator Click Here
MAS: What is a Buy to Let Mortgage Click Here
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