Buy-to-Let and Let-to-Buy Mortgages

The mortgage market is increasingly diverse and often confusing. It can be tricky to keep up to date with the ever changing regulation and the multitude of options available.

Whether you’re purchasing your first investment property, you’re a professional landlord with a portfolio of properties looking for a better deal or you’ve retained a property following a house move or wish to do so, understanding how the Buy-to-Let and Let-to-Buy markets work is imperative.

Calculating the true cost of a buy to let or let to buy mortgage is not straightforward.

 

Buy-to-let & Let-to-Buy mortgages are unlike the traditional residential mortgage you might take out for your own home, for instance, how much you can borrow does not specifically depend on how much you earn and is based on numerous factors: the earning potential of the property (i.e. the rental income), the equity or deposit readily available and the rental income calculations – and these vary greatly from lender to lender – all have an impact on the amount you can borrow. The Financial Conduct Authority does not regulate most forms of buy-to-let mortgage.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Buy-to-Let

A Buy-to-Let mortgage is a mortgage specifically designed for the purpose of buying a property to let to tenants rather than to live in oneself.

Let-to-Buy

A Let-to-Buy mortgage is a mortgage specifically designed for the remortgaging of your current main residence to enable you to purchase a new residential property taking out a separate “traditional” mortgage – for example, if there’s enough equity available in your current property you could release it to put down as the deposit on your new home.

You would then let out your existing property, using the rental income to cover the Buy-to-Let monthly mortgage payment & your salary to cover the mortgage on your new residential dwelling.

There are additional stamp duty and legal costs involved in Buy-to-Let properties. You should obtain a note of these costs before you proceed with any investment.

There are now plenty of competitive mortgage deals available that are specifically aimed at the buy-to-let & let-to-buy markets – making it paramount that right correct lender is chosen, as such our advisers will take time to discuss all of this with you to ensure that the lender and the product recommended is the very best deal available, offering specialist advice, tailored to meet your specific needs, whatever your circumstances.

 

The key differences are explained in more depth below:

Deposit

You will be required to put down a deposit, this amount is typically larger than for a standard residential mortgage – it will likely be 15-25% of the property’s value.

Affordability

Largely assessed on the property’s profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than on your own personal financial circumstances. That said, many buy to let lenders will require you to have a minimum salary, typically £25,000+

Rental income

Your expected rental income must exceed your mortgage repayments by a certain percentage – for example, your mortgage lender may require a rental income of 135% of your monthly mortgage payments – this calculation differs greatly between each individual lender

Interest rates

It’s common for the interest rates on buy-to-let mortgages to be higher than residential mortgage rates

Arrangement fees

Arrangement fees are typically higher than those charged on a traditional residential mortgage. You may also find that arrangement fees are calculated as a percentage of the amount you’re borrowing, rather than just a flat fee.

 

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These types of mortgage are a long term investment which you hope will generate a rental income along the way and a profit when you sell the property, but bear in mind that if you need access to some cash a property can take time to sell ore remortgage. If house prices fall you might not be able to sell for as much as had hoped. You would have to make up the difference if the property sold for less than you owe – a risk that increases the higher the percentage you borrow at. If you sell for a profit you may have to pay capital gains tax. Don’t forget that with a variable rate mortgage your costs will rise if interest rates go up. This would eat into, even wipe out, your in come and profit.

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For establishing your needs, undertaking research and making a recommendation, we charge a fee of £395. Our fee typically becomes payable when you apply for your mortgage. This amount and when it is payable will be confirmed in your Client Agreement letter.

If you choose to proceed with our recommendation and the mortgage goes ahead, we will also be paid commission from the lender for arranging the mortgage on your behalf.

The amount of commission we receive varies from lender to lender. Information about the range of commissions available to us from the mortgage products we recommend is available on request.

If you apply for a mortgage that does not go ahead, you will receive no refund.

You will receive a personalised illustration when considering a particular mortgage. This will highlight the key facts about the mortgage product, including any fees relating to it and the amount of any commission due to us from the mortgage lender.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

 

To discuss your mortgage requirements in more depth please contact Roxburgh Financial Management by phone on 0345 434 9505, or email enquiries@roxburghonline.co.uk or use the contact me option by clicking here

Six reasons to use us

  • We put our client’s needs above all else
  • We are 100% independent
  • We understand how important these decisions are for you
  • We will communicate with you in plain English with no jargon
  • Our advice is tailored to your demands and needs
  • Our advice will leave you in an informed position to make the right choices

 

You may also be interested in:

  • Residential Mortgages
  • Bridging Finance