Last reviewed on 6th October 2023 by Martin Alexander (Mortgage Advisor)
Property investment remains a popular option, even with the recent increases in interest rates. As lenders try to manage the changes in rates made by the Bank of England and the demand for property investment, the criteria for buy to let mortgages are ever-changing.
Buy to let mortgages are easier to obtain than in former years. Previously, buy to let applications were primarily based on an applicant’s income and credit file. This meant buy to let mortgages were only available to landlords with clean credit and a substantial income.
More recently, lenders have shifted their focus towards the rental income that investment properties may achieve. The change in focus means it’s easier to get a buy to let mortgage now than before.
- What are the criteria for a Buy to let mortgage?
- How much deposit will I need?
- How is affordability assessed for buy to let?
- Eligibility criteria for professional landlords
- Can I use a buy to let mortgage for an HMO?
- Do my tenants need to work to get a buy to let mortgage?
- Purchasing a buy to let with a limited company
- Can I get a buy to let mortgage if I live overseas?
- Get help from a buy to let expert
What are the criteria for a Buy to let mortgage?
Lenders will use the following criteria for a buy to let a mortgage:
- Rental income – Perhaps the biggest factor to get a buy to let mortgage is the rental value of the property you want to buy. Lenders will require your property to fetch 125% and 145% of the monthly mortgage payment.
- Employment – Most lenders will require you to be in full-time employment to meet the mortgage criteria. This can involve providing your employment details for the last 6-12 months.
- Income and salary – Although there are lenders that have zero income requirements, most lenders will require applicants to have a base salary. Unless you’re a full-time landlord or have a buy to let limited company, you’ll need to provide details of your income.
- Age – You’ll need to be at least 21 to get a buy to let mortgage, although some lenders may accept 18-year-old applicants. Other lenders require applicants to be at least 25.
- Credit history – Lenders will check your credit history as part of their assessment. While it’s still possible to get a buy to let mortgage with bad credit, it doesn’t help your situation. More severe credit problems may cause you to fall short of a lender’s criteria, whereas small credit problems, such as a missed phone bill, shouldn’t cause too many issues.
How much deposit will I need?
You’ll need a 25% deposit for a buy to let mortgage, as most deals start at 75% loan-to-value (LTV). Some lenders may consider 20% deposits, but such products are generally for experienced landlords and will have higher rates.
If you’re a first-time buyer, you may require a minimum 30% deposit if accepted. This is because most lenders won’t consider first-time buyers for buy to let.
How is affordability assessed for buy to let?
Affordability for buy to let is based mainly on the rental income of your property. For instance, your rental income should be at least 125%-145% of the monthly mortgage. However, lenders will still check your income to assess whether you can repay the mortgage if you’re not receiving rent from the property.
Remember that not all lenders are the same and have different criteria for assessing affordability. For instance, Darlington won’t check your affordability if your rental income meets their requirements. In comparison, HSBC will require applicants to earn at least £20,000 per year, whereas Barclays require £25,000 as a minimum income.
Eligibility criteria for professional landlords
Your level of experience affects the mortgages that are on offer to you. Experienced landlords often find it easier to obtain buy to let mortgages than first-time landlords. Some lenders will require you to be a homeowner already, whereas others won’t.
Being an experienced landlord can also have its setbacks. This is because some lenders have a limit on how many buy to let mortgages they can offer an individual.
Your property experience will usually fall into one of the below categories. Each category can affect your buy to let mortgage assessment.
- First-time buyer
- First-time landlord (owns a residential property)
- Landlord (currently owns at least one buy to let property)
- Experienced landlord (owns a portfolio)
Most lenders only lend on traditional brick-built houses such as detached, semi-detached and terraced properties. Lenders instruct surveyors to carry out mortgage surveys to ensure the property meets their requirements before lending.
On occasion, a mortgage survey can suggest several improvements as a condition of the mortgage. This is then usually agreed upon between the vendor and the buyer. Even if you remortgage a buy to let property, lenders may still conduct a mortgage survey to assess whether the property meets their specific requirements.
Why do mortgage lenders decline particular property types?
Lenders may decline properties that need extensive refurbishment. For instance, most lenders would decline you if your property didn’t have an actively working kitchen. There are other financing methods, but a buy to let mortgage will probably be out of the question.
The material used to build the property can also significantly impact whether or not a mortgage is possible. For instance, properties that aren’t brick-built can be difficult to get a mortgage. These include barn conversions and properties made from other materials such as wood and concrete.
If you’ve seen a property and are unsure, our advisors can check if you meet a lender’s criteria.
Most lenders will lend in all UK locations, but some lenders are restricted to England, Ireland, Wales or Scotland. If you’re particularly keen on a mortgage, ensure the lender isn’t restricted in your area.
Can I use a buy to let mortgage for an HMO?
Buy to let mortgages are typically used for regular single lets with assured shorthold tenancy (AST) agreements. You may require a specialist lender if you aim to buy an HMO (multi-letting rooms/flats).
Rates are typically higher for anything that isn’t a standard single let. If unsure, you can speak to an advisor to help you further.
Learn more: What is an HMO mortgage?
Do my tenants need to work to get a buy to let mortgage?
The status of your tenants can also impact your buy to let mortgage. Some lenders won’t have an issue if your property was let to working professionals but may refuse if tenants are students or claim universal credit.
Read more: How to get a mortgage on a student property
Purchasing a buy to let with a limited company
Property investors with portfolios may benefit from paying less tax by placing their portfolios under a limited company. Applying for a buy to let mortgage with a limited company may allow you to offset expenses where you’d otherwise struggle. Some directors may have a limited company that isn’t used for property investment but may want to purchase through the limited company.
If you’re a director and require a buy to let mortgage, it is possible. Lenders have been approving more limited companies for buy to let mortgages. This is because many landlords have created limited companies due to tax changes.
Before this, only a handful of lenders would consider lending to a limited company as the risk for a lender is quite high. Self-employed buy to let mortgages are very common, so lenders have adjusted their criteria accordingly. If you require a buy to let mortgage with a limited company, our advisors can help you to get started.
Can I get a buy to let mortgage if I live overseas?
The majority of lenders require buy to let applicants to be UK residents. As a result, expats can find it difficult to get a buy to let mortgage. Lenders often see expats as high risk because the applicant lives in a different country. Occasionally, some lenders may still lend to overseas applicants in cases where applicants are low-risk.
Get help from a buy to let expert
Property investment typically starts with keeping a close eye on the numbers. Getting a good start to your investment journey is crucial, as you won’t want to overpay on your mortgage. Trying to compare hundreds of deals across multiple lenders can be difficult. This is why seasoned landlords often use mortgage advisors to do this for them.
Our experts are experienced advisors and help landlords to find buy to let mortgages daily. We’ll assess your eligibility for a buy to let mortgage to let you know what your options are. Our experts can then search the market depending on your circumstances. You can make an enquiry to get started, and an expert will call you back.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.