If you are buying a property to rent out, you will need a buy-to-let mortgage. The big difference is that while standard residential mortgage lending is based on your income, the amount you can borrow for a BTL mortgage is mainly determined by the potential rent.
Lenders usually require a minimum ‘rent coverage’, where the rental income is between 125% and 145% of the mortgage repayment amount. If you are a higher-rate taxpayer, the cover required may be higher as you can’t deduct all the financial costs from your rent anymore.
Although BTL mortgages are now commonplace, around 75% of products are still only available through brokers - i.e. you can’t access them by going directly to a lender yourself. And if you’re planning to let the property as a House in Multiple Occupation (HMO), you will need a specialist BTL mortgage, which only a limited number of lenders offer, so it’s even more important to use a broker.
Buying at auction
Suppose you’re looking for a fixer-upper, whether for yourself or as an investment property, or you just fancy a property you have seen online and it’s at an auction, such as First for Auctions. In that case, finance works slightly differently from buying on the open market. You will need to have finance in place before bidding because contracts are generally exchanged when the hammer falls, and you usually only have 28 days to complete.
Specialist auction finance companies will generally lend a maximum of 75% of the purchase price, and fees and interest rates will be higher than with a traditional mortgage, but they can turn things around within a few days.
Note that if a property is not habitable—e.g., it doesn’t have a functioning kitchen or bathroom—it may be unmortgageable. In that case, if you don’t have the capital to make a cash purchase, you will need to look into the possibility of taking out a bridging loan until the property can be mortgaged.
Renovation mortgages
If you’re buying a property that needs work, you may be able to get a specialist ‘house renovation mortgage’, where you borrow money for both the property and the renovations. It’s important to know that if a lot of work is required, the lender may withhold some of the funds until specific essential repairs have been done.
Green mortgages
If the property you’re buying already has an EPC rating of A or B, you may qualify for a ‘green’ mortgage, where lenders reward eco-friendly homeowners with lower interest rates or cashback.
If you’re buying a property with a lower energy rating but planning to make improvements, you may be able to borrow additional money at a discounted interest rate or get cashback for making certain upgrades.
For instance, at the time of writing, Halifax offers up to £1,000 cashback for fitting a heat pump. Nationwide allows mortgage holders to borrow between £5,000 and £10,000 at 0% interest to carry out green home improvements.
For first-time buyers
While some first-time buyers (FTBs) might have enough income and savings to take out a traditional mortgage, many struggle with affordability, particularly when it comes to saving for a deposit.
The good news is that there is plenty of help out there for FTBs, including:
- Mortgages that can be secured with a guarantor (usually parents)
- 100% Track Record Mortgage for those who can prove at least 12 consecutive months’ rental payments within the last 18 months – and there’s no need for a guarantor
- The Family Springboard Mortgage, where a ‘helper’ puts 10% of the purchase price in an account as security on the loan, enabling the FTB to borrow 100%
- With the new build Deposit Unlock Scheme you can purchase a property with just a 5% deposit
- For buyers in England, the First Homes Scheme where certain homes are available to FTBs for between 30% and 50% less than their market value
If you’re looking for your first home, Mortgage Scout can explain all the financing options available to you and advise which might be most suitable.
Shared Ownership
This option, where you purchase a percentage of the property and pay rent on the remainder, is increasingly popular in areas where prices are higher than average, such as London and Edinburgh. Because you only buy a proportion of the property – usually between 25% and 50% - the deposit amount and mortgage payments are more affordable. You can find available properties in your area through SOWN.
* Sarah Thompson is Managing Director of Mortgage Scout *
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Are you mad them days are gone, let it stop there.
They were good times Michael now gone for ever, I would attend an auction come out with the cheapest lot of the day, spend a year renovating and letting it out then repeat the next year, I would still be doing so, but not now with all the cr4p coming our way
There’s going to be far less BTL and development mortgage business around, so you would think these mortgage companies would get behind the politics and start advocating for the PRS before they lose a lot more business!
Next Wednesday is the final nail in the Coffin and the demise of Private Landlords. Well done Mr Ben Beadle you anti-private landlord CEO shame on you.
Colluding with Mr Michael Gove the so called Housing Secretary to introduce Mr John Prescott’s Labour’s Policy’s contained in his 2004 Act.
There could still be about ninety Conservative MPs who will vote against the bill.
Labour may not like the amendment about the requirement for court reform before Section 21 is abolished, so they might not support it.
I absolutely believe current Govt are conducting a war on PRS to corporatise the market and support their mates in BTR companies. I recognise that the socialist ideology of Labour will always favour the tenant before the rights of a Landlord to their own property. I think govt will be trounced in next election (and deservedly so) and hope that many old style tories both voters and MPs will defect to Reform who are anti RRB. Despite gobby Rayner and her clear antipathy towards Landlords do contributers on this site feel there is any chance that Labour (who are hopefully not going to have the same corporatising agenda as Consv govt) will recognise that when Landlords sell up they will be unable to fund the breathtaking bill for temporary housing and therefore MIGHT be a little more circumspect before trampling even further over PRS. I ask because we are already seeing many councils financially struggling to pay temp accomm bills and common sense would say these will be mostly more economically challenged areas under Labour councils. Surely at some point simple financial self preservation will have some impact on their desire to annihilate the private LL? I say this in hope rather than belief as if the majority of Labour are as unhinged and bigoted as Ms Rayner god help this country.
There are two agendas at work but they have much in common: in one, the aim is to get rid of private landlords (the competition) and in the other, the aim is to transfer ownership rights from landlords to tenants (the left-wing aim). The first aim is achieved by small private landlords selling up and the second aim is achieved by landlords carrying on letting to people who want to stay in the property indefinitely.
On Catherine's point about whether Labour might want to retain small landlords, I think Matthew Pennycook has committed to end Section 21 on Labour's first day in office, so they are banking on landlords just carrying on without it.
Andrew I know done that too and didn’t we refurbish turning dumps into modern with all the facilities, re-wire re-plaster, kitchen, bathrooms, CH etc and loved it.
The properties others wouldn’t touch just wanted one’s that they could get away without doing anything just rent out slums really which was why they were in the Auction as a Mortgage wouldn’t be available on those but they made the soft money.
I was so green at my first Auction the Auctioneer said Sir you are bidding on yourself, I was so determined I was getting it anyway. It was Stable where the horse used to be kept in Acton, 18’88 stock brick built with a loft for hay. I did get planning permission after a few attempts to build a house which is now there to the good.
Ellie the end of sec 21 will just mean for those of us that remain 5star+ tenants with 5 star+ guarantors only will be considered with maximum rent charged to make the risk worthwhile
You are very experienced Andrew so you will no doubt manage with respect to the rent. However, I remember, in the Rent Act days that tenants could apply to a rent officer to have the rent put down significantly. I don't know whether Labour will move towards that again.
And the tenants who did that had the right to stay in the flat indefinitely, as did their children.
Yes and if the tenant took you to a rent tribunal it would go up by sixpence a month!!! No one would give you a mortgage on properties with sitting tenants if they had children living with them.
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