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What is a buy to let mortgage?
A buy to let mortgage is a loan you can take out to buy a property you intend to rent out rather than to live in.
We can help with what you need to know
With a buy to let property, people often use the money they charge for rent to cover the monthly mortgage repayments.
As a rental income isn’t guaranteed, a buy to let mortgage can be more expensive than a residential mortgage as they carry a bigger risk.
Learn more about how they work and how to apply for one.
How do buy to let mortgages work?
Unlike a residential mortgage, a buy to let mortgage is usually a repayment of an interest-only loan. This means your monthly repayments only cover interest that’s accrued. They do not cover the original loan amount.
The loan amount borrowed will need to be paid back at the end of the agreement. You can do this by:
- selling the property
- using savings
- agreeing new mortgage terms.
Your lender may ask for a higher deposit. The amount varies but can be a minimum of 20 to 25% up to 40% of the property’s value. A buy to let mortgage may also have a higher interest rate than a residential mortgage.
Applying for a buy to let mortgage
What lenders will look for
Like a residential mortgage, a lender will look at a few things:
- Deposit size.
- Your salary.
- Credit history.
- Existing debts.
- Rental yield.
Interested in a buy to let property?
Buy to let mortgages can work differently to other mortgage products. Find out more about getting a mortgage as a landlord.
View our buy to let mortgage rates
Check our current mortgage deals on buy to let mortgages and start your lettings journey with Lloyds.
Things to consider
A buy to let mortgage is different to a residential mortgage. Here are some of the things you’ll need to consider before you apply.
You may need landlord insurance and building insurance for your property.
You may have to pay more in stamp duty if the property isn’t your primary residence. This may also apply to the Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.
- Income tax applies to any rental income you receive.
- If you sell your buy to let property for more than the original price, you may be liable to pay Capital Gains Tax.
- House prices can go down as well as up. If property prices fall, you could end up with negative equity. When you owe more on your mortgage than the property is worth.
Let’s look at the details
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- Utility bills.
- Payslips for the last three months, or proof of income and tax returns if self-employed.
- Proof of existing mortgage statement.
- Proof of extra income.
- Bank statements on all current accounts for the last three to six months.
- Proof of outgoings.
- Proof of identity, for example your passport or driving licence.
- Details of the property you are looking to buy.
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