Buy-to-let mortgages are increasingly popular as high property prices and a lack of affordable new-build homes prevent prospective buyers from becoming homeowners, keeping the rental sector buoyant. As well as the continued demand for rental properties from tenants, landlords currently benefit from the high rental yields that can be achieved. This type of mortgage has stricter lending criteria than standard mortgages. However, when you’re looking to secure a large buy-to-let mortgage loan, lenders tend to offer more flexible solutions.
What is a buy-to-let mortgage?
When you want to buy a property as an investment to rent out, you need a buy-to-let mortgage. Interest-only mortgages tend to be favoured for buy-to-let investments because this helps you to maximise your cash flow. You benefit from lower monthly payments than with a repayment mortgage. This can free up some of your money to invest in other projects or give you a cushion for periods when you’re not receiving a rental income. Alternatively, it can allow you to save towards repaying the capital at the end of the mortgage term. The interest rates for buy-to-let mortgages are usually higher than rates offered for residential mortgages. Lenders are generally happy to offer interest-only buy-to-let mortgages. This is because the property can be sold at the end of the term to repay the loan if necessary.
The lending criteria for a large buy-to-let mortgage loan
Generally, a large loan is considered to be £500,000 upwards, although lenders vary with their criteria. The amount you can borrow depends on numerous factors. These include your income and income structure, the rental income, your deposit and any security you can offer to the lender.
Many high street lenders offer large buy-to-let mortgages. Typically, they require you to have a minimum annual income of £25,000 and you need to pass their standard affordability checks. This is fine if you have a straightforward income. However, as a high net worth individual, it’s more likely that you have an irregular income or complex income structure. This is when a specialist lender or private bank can help you.
They can offer much more flexibility and take varied income streams into account as well as other assets. This not only increases your borrowing potential but the addition of extra security for the lender makes them willing to offer you much more competitive rates. Some private banks prefer to establish a long-term relationship with you. Therefore, they will offer even better rates in exchange for holding some of your assets under management. Your specialist mortgage broker in London, Kent or Edinburgh will be able to advise you on which lenders stipulate this requirement.
The rental income
While some lenders concentrate on your normal income for their affordability checks, others focus more on your potential rental income. They can require a minimum rental cover so that a certain percentage above your mortgage payment is received in rent each month. For example, a lender may require a rental cover of 130% and the monthly mortgage payments for an investment property in Pimlico are £1,000. This means you need to receive £1,300 each month in rent.
A feature known as top-slicing is used by some lenders. This takes your personal income, such as your salary or pension, into account as part of their affordability checks. When there is a shortfall in the rental income compared with the usual rental cover required, the extra income is used to top-up the shortfall in rent. This more flexible approach to lending can enable you to secure a larger buy-to-let mortgage than would otherwise be possible.
The deposit requirement
Deposits for buy-to-let mortgages tend to be higher than for residential mortgages. You can usually expect to have to pay 25% of the property value, although this requirement varies between lenders. Some, for instance, may insist on a minimum deposit of 40%. Others may agree to a lower amount of 15%. Your individual circumstances will play a big part in this requirement. This is especially the case if you are dealing with a specialist lender or private bank. As mentioned above, their lending conditions are much more flexible than those of high street lenders. Regardless of the lender you approach, the more deposit you can pay, meaning a lower loan-to-value ratio, the more competitive the rates will be.
Choose the right buy-to-let investment
Before you proceed with a buy-to-let mortgage, carefully research the location you wish to buy the property in. You need to be sure that you have accurately calculated the rental revenue you can achieve and that you can rely on a sufficient demand from tenants in the future. This reduces your risk of having empty periods in the property and ensures your monthly repayments are covered. You also need to ensure the property is in good condition. That way, the tenants benefit from a high standard of living and the property will appreciate in value over time.
Some lenders may favour certain types of tenants to ensure consistent tenancy periods and, therefore, regular rental payments. For example, renting your Pimlico property to students can be more complicated than renting it to working tenants who have signed a standard 6-month assured shorthold tenancy agreement.
Benefit from flexible borrowing with a large buy-to-let mortgage loan
When looking to secure Welling or Pimlico mortgages for large buy-to-let investments, your mortgage broker is an essential point of contact. This is the case whether you are a new investor or a professional landlord with a large property portfolio. Securing a buy-to-let mortgage can be challenging. Your unique income structure as a high net worth individual can make it more so. Your highly experienced mortgage broker can help you maximise your investment regardless of your circumstances. For example, being self-employed, retired, a foreign national, an expat or paid in foreign currencies.
Your broker can advise you on the buy-to-let property market, your tax liability as a landlord and the different types of borrowing available to you. Rather than taking out a new buy-to-let mortgage, for example, you may prefer to release equity from another property in your portfolio. Alternatively, it may be better to place a cross-charge against a different asset. Another consideration is that it may be more beneficial to purchase the property under a company umbrella.
Your specialist buy-to-let broker can find the right lender to meet your mortgage needs, taking your complete wealth into account, including your property portfolio and other assets. This includes those that may require introductions. Your broker will also have access to buy-to-let mortgage products that are not advertised publicly.