ONP Blog

An Introduction to Buy To Let Mortgages

For many people looking to step onto the property ladder, buying-to-let has always been a key consideration. If you’re unsure of what this means, simply put, a buy-to-let property is bought with the intention to rent out to tenants rather than lived in by the purchaser.

A buy-to-let property can act to generate a passive income through the rent that is charged if it surpasses the remortgages repayments. There are a lot of details to know around this type of mortgage, and that’s what we look to uncover in this article!

What is a buy-to-let mortgage?

In more detail, a buy-to-let (BTL) mortgage is a specific type of mortgage. Unlike typical mortgage applications, where a buyer is looking to purchase a property to live in, lenders will look at the potential income of the rental property as your primary income source opposed to your salary. Your personal income will often be looked at as a secondary factor because of this.

Usually, lenders will want the projected rented income to meet at least 125% of the monthly interest payments on the loan. This is something that can be verified by independent sources during the process of application and this calculation itself is known as the rental cover.

As buyers will be purchasing property to then rent out, this will usually require a larger deposit. Typically, lenders will usually ask for at least 25% of the property cost in comparison to the common 10% asked for on regular mortgage applications.

What location and property considerations should I make?

When it comes to buying a home, location is one of the first considerations you make. This is no different when it comes to buy-to-let properties. Rather than considering where you’d like to live, you need to be thinking about what type of tenant you want to be targeting and what can offer you the best returns in terms of mortgage payments and rental income.

Location really is key. For example, if you’re looking to rent out to young professionals, you might want to choose a property that is close to the city centre with great transportation links. Considering renting to a family? Then you might need to think about proximity to schools! This type of tenant targeting will also allow you to think about the type of property you want to purchase.

What do I have to do as a landlord?

Landlords have a lot of legal responsibilities when it comes to managing a property. Tenants must be confident that their right to live in the property is protected by a tenancy contract. The most common type of tenancy contract is a ‘shorthold tenancy’ (AST) which gives tenants a legal right to live in the property for a fixed duration or on a rolling term.

This period of tenancy usually lasts between six and 12 months and will outline how much a tenant must pay to the landlord in that time. Other information within this contract will include who is responsible for the repairs, if rent can be increased, tenancy duration, and details regarding the tenant deposit.

The tenant deposit is a huge focus area and is protected by government backed deposit schemes. It is yours (or your letting agents) legal duty to have one in place and you will be fined if you don’t. There are two types of deposit schemes which include insurance and custodial.

Insurance Scheme

Using this scheme, the landlord or letting agent retains the deposit and pays interest to the insurer.

Custodial Scheme

This option means that the deposit is paid directly into the scheme and is free-of-charge to use.

As well as all the above, landlords will need to carry out regular maintenance tasks. This will include making sure that the property is safe to live in and abiding by fire safety regulations, as well as carrying as electric and gas safety tests.

We understand that when you are buying-to-let, completing the process as quickly as possible is incredibly important. That’s why our team of experts at ONP Group offer buying to let conveyancing services to support your every need. Interested in learning more? Contact us today!

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