A guide to Buy-to-Let mortgages

By Furness Building Society

The property investment industry is booming, with a reported 2.66 million landlords across Britain in 2019.

It’s widely acknowledged that in the right circumstances, a buy-to-let property can generate significant financial perks and result in a burgeoning business. 

For those unable to purchase a property outright, a buy-to-let mortgage enables both aspiring and established investors to purchase a property and earn a rental income from it. There’s also the added potential of being able to watch your capital grow as the property increases in value.

There are varying mortgages available to assist you in building a property portfolio and it’s important you get the right mortgage for you and your situation. This guide should serve as a handy reference for those new to the buy-to-let market. We’ll break down everything you need to know before taking the leap to become a fully-fledged landlord.

What is a Buy-to-Let mortgage?

A Buy-to-Let mortgage is when you borrow money from a lender to buy a property that will be leased to tenants on a long term basis, with the average length of a tenancy being six or 12 months. 

 

For this reason, a Buy-to-Let mortgage is very different from a Holiday-Let mortgage, which enables property owners to let out their accommodation to guests on a short term basis only. 

  

It also differs from the residential mortgage you may have on your home. Should you choose to let your own home, even for a short time, you’ll need to speak to your lender who may transfer your mortgage to a Buy-to-Let product. 

 

As with residential mortgages, you can get interest-only and repayment mortgages on a Buy-to-Let property. Interest-only being when your monthly payment covers only the interest charges on your loan and repayment when you also pay back the original capital borrowed. 

What’s the difference between a normal mortgage and a Buy-to-Let?

Who can get a Buy-to-Let mortgage?

How much can I borrow for a Buy-to-Let?

What types of Buy-to-Let mortgages are available?

How much deposit is needed?

What costs are involved in Buy-to-Let?

What is an EPC Rating and how does it affect Buy-to-Let?

An Energy Performance Certificate, otherwise known as an EPC, is a document that indicates how energy efficient a property is on a scale of A to G (with A being most efficient). The scoring is based on environmental factors such as expected energy output and energy performance features in the home, including insulation and solar panels.

In April 2018, the government introduced the Minimum Energy Efficiency Standards (MEES) legislation which meant all homeowners and landlords were required by law to maintain an EPC band rating of ‘E’ or above.

However, a consultation launched in January 2021 will see this raised to an EPC band ‘C’ with an expected increase to band ‘B’ a number of years later. A phased trajectory for achieving the new regulations will see the MEES brought in on new tenancies from 2025 and all tenancies from 2028. This means EPC documentation will need to be made available to tenants at all times and can be requested by your prospective tenants when viewing the property.

Next steps

Do you have any questions? Please get in touch with our mortgage team to discuss your Buy-to-Let plans or give us a call on 0800 834 312.