Buy to Let

What is a buy to let mortgage?

A buy to let mortgage is a mortgage for purchasing residential property with the specific intention of letting it to tenants.

Buy to let mortgages have been around since 1993 when the Association of Residential Letting Agents coined the term. Before then landlords and residential property investors used commercial mortgages to buy property to rent to tenants.

In general, buy to let mortgage lenders operate according to short term strategic business targets, setting up lending pools for each particular mortgage product. When these pools become empty the product is withdrawn from the market.

If a borrower takes on an interest-only buy to let mortgage, then of course at the end of the mortgage term they would not own the property outright, so they would need to remortgage, sell the property or have another way of paying off the mortgage (for example a separate investment plan).

Lenders will typically look at the borrower’s potential rental income, rather than salary or wages, to decide whether the loan is affordable. For an investor’s first buy-to-let mortgage, the lender may look at income from an employer as well. Because buy-to-let mortgages are riskier for lenders, the borrower is likely to need a bigger deposit than with residential mortgages.

Lenders will expect to see evidence that your expected rent will cover your mortgage payments by at least 125%. They’ll also want you to acknowledge that a buy-to-let property is principally a long-term investment. Over the long term, house prices are likely to increase but in the short term they could fall or stay the same.