Embarking on the purchase of a second home is an exciting step, but it comes with its own set of financial considerations, primarily the required deposit.

When you’re ready to expand your property portfolio, understanding the deposit dynamics for a second property mortgage is crucial.

Lenders often view those who already own property favourably, considering them less risky and more reliable borrowers.

However, the stakes are higher with a second home, leading to generally larger deposit requirements compared to a first property mortgage.

This is due to the increased financial risk associated with managing multiple mortgages.

Dive deeper with us for expert insights into securing your second home through a well-planned deposit strategy.

How Much Deposit Do I need for a Second Home Mortgage?

The amount of deposit you’ll need for a second home will vary depending on the lender and your circumstances.

While some will only consider the amount you can put up as a deposit, others will consider the amount of equity you have in your current home or both.

Other factors that can influence the amount of deposit you need to include:

• Your creditworthiness.
• How you’ve handled your existing mortgage.
• The mortgage type.
• Lenders will consider your income and expenditure when calculating affordability.
• The type of property you’re eyeing and whether it’s standard or non-standard.

A 20% deposit is usually the standard for attractive mortgages with attractive rates and terms.

Most lenders will only offer deals with 80% loan to value (LTV) for second mortgages.

You may need a higher deposit depending on the type of property.

You’ll require a higher deposit if the lender considers the property a higher risk. If the property is a higher risk, they may set restrictions to 85%, 80%, 75%, or 70% LTV.

Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

Can I Get a Second Mortgage with a 10% Deposit?

Theoretically, it’s possible to get a second home mortgage with a 90% LTV, requiring a 10% deposit. However, it’s tough.

Your choice of lenders will be limited, since most cap the loan to value they can accept at 80% or 75%.

Some lenders can stretch up to 85% under the right circumstances, while a minority can reach 90% and up.

Having significant equity in your first property and meeting all the lenders’ affordability and eligibility criteria requirements can increase your chances of getting a higher loan to value ratio.

However, higher LTVs for second mortgages will usually attract higher interest rates, translating to a higher repayment.

A higher deposit amount is more suitable, and the deal gets better every time you go higher by 5%, so aim for 15% to 20% deposit milestones or higher.

Using Equity as a Deposit for a Second Home

You can also remortgage your first property t0 get the funds needed for a deposit for your second home.

You can release the equity you hold in your first property and use the funds to finance the deposit necessary for a second home mortgage.

A second charge is another option to consider if you don’t want to remortgage your first home.

It’s usually a better solution if you’re looking to release the highest amount of equity possible.

You must meet the requirements and eligibility criteria of the lender and ensure you have enough equity in your home whether you choose to remortgage or take out a second charge.

It’s wise to consult a qualified advisor in any of these cases because it involves having more than one mortgage at the same time.

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How Affordability Influences Deposit

Affordability is vital when you apply for a second mortgage, and it’s usually calculated by considering your monthly income and expenditure.

Lenders are generally willing to advance you up to four or five times your income.

The maximum amount a lender can offer can also be based on assessing your outgoings, including how much you’re paying on your current mortgage and other obligations like credit card debt and loan payments.

Such assessments provide a clear picture of how much disposable income you have.

For example, if you can get a £150,000 mortgage but the property you’re eyeing is going for £200,000, then you’ll need to come up with a £50,000 deposit. It would translate to an 80% LTV mortgage, which requires a 20% deposit.

A different lender may even advance a lower amount depending on the LTV ratio they accept, meaning you’ll need a higher deposit. It’s recommended that you shop around to get the best deal with the highest savings.

Affordability is easier when you’re looking to purchase a buy to let property that can generate rental income.

Your affordability improves with the potential rental income that you can use to repay the second mortgage.

How Will Bad Credit Affect Deposit?

Your credit score impacts your eligibility when applying for any type of credit.

Although it’s not a deal-breaker, a bad credit score will affect how much interest rate is available for you and the amount of deposit you’ll need for a second mortgage.

Some lenders may decline you if you have severe credit issues like bankruptcy or a CCJ, while others may be more welcoming.

It’s worth consulting mortgage advisors and brokers who have access to the whole market and can connect you with mortgage lenders who specialise in helping bad credit borrowers.

You’ll likely need to come up with a higher deposit than usual if you have a bad credit score.

You can still get a good deal depending on when the credit issue occurred, your current financial situation and the LTV on your current property.

To ensure you get the best possible deal and don’t get too many rejections, ensure you get professional advice before making your application.

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How the Property Type Affects Deposit

You’ll fund different policies among lenders depending on the property type. Specific residential categories usually present more challenges than others when buying a second home.

Lenders may need you to provide a higher deposit based on the property you’re buying. The higher the risk the lender considers the property to be, the higher the deposit needed.

For example, you may face certain restrictions if you need a second mortgage for new build homes.

The lender may require a certain deposit amount or have particular builders or construction firms they prefer to work with.

You may also face additional challenges in your second mortgage application if the property involves non-standard construction, like:

• Above commercial properties.
• Ex local authority
• Homes with unusual construction, like concrete pre-fabs or thatched roofs
• Very high-rise flats or studio flats
• Use of hazardous materials like asbestos in construction

It may be hard to access the most affordable second mortgage deals with such properties, translating to a higher deposit or interest rate.

Can I Get a Second Mortgage with Zero Deposit?

Most lenders will be reluctant to provide a zero deposit or 100% LTV mortgage of any kind because of the levels of risk involved. However, it’s not impossible under the right circumstances.

You can get a second mortgage with no deposit by incorporating a guarantor in your application.

The guarantor can be a responsible person in your life, like a friend or family member with a good credit score and stable finances.

When you incorporate a guarantor, they also become responsible for repaying the loan.

They effectively agree to repay when you default or are unable to make repayments, effectively guaranteeing the mortgage and reducing the risk for the lender.

The guarantor may be required to put up their property as security or deposit a lump sum into an account held by the lender. The deposit can only be withdrawn after a certain amount of the mortgage has been paid off.

Deposit Required for a Second Home Final Thoughts

Putting a mortgage deposit can be challenging, especially if you’re already repaying another mortgage.

Therefore, it’s wise to ensure you get the best deal possible that can save you money, and you can do this by consulting with expert mortgage advisors and brokers.

Call us today on 03330 90 60 30 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

You’ve just started getting into the property market, and your goal is to purchase a property, spruce it up, and rent it out for a profit.

This is an age-old business model that thousands of investors have leaned on. But where does this leave you?

How do you know if you’re making a sound investment? How can you calculate your rental yield so that you can manage and monitor your investment and see if it is a viable investment, to begin with?

This is where a rental yield calculator comes in and provides a rather insightful outcome.

This type of calculator helps investors measure the possible earnings they can make on a property.

You will find several rental yield calculators online. If you choose to use them, keep in mind that they often don’t consider the cost of ongoing property maintenance and other expenses – which are additional costs you will need to consider.

This article provides an overview of rental yield, how to calculate rental yields for properties located in the United Kingdom, and covers a few of the most common FAQs surrounding rental yield. Let’s jump right in.

What is a Rental Yield?

The first step to understanding a rental yield calculator is understanding what a rental yield is in the first place.

So, what is a rental yield? In general terms, a rental yield is the amount of money you can earn from an investment property, expressed as a percentage of the asset value.

As a property investor or a potential landlord, it is helpful to know your return on your outlay of capital.

When you have a rental yield calculated, you have a better idea of how much money you have to “play” with each month and whether or not your investment is performing over the long term.

What is a Good Rental Yield in the UK?

While shopping around for the right rental property, you may wonder what is considered a good rental yield in the UK.

Generally speaking, keep in mind that it can fluctuate from property type to property type; a rental yield of 7% or more on a buy-to-let is considered a “good” rental yield in the United Kingdom. So, if your yield is 7%, you’re onto a good thing.

How to Calculate Rental Yield on UK Properties

Take the monthly rental income and multiply it by twelve to calculate your rental yield. This will give you the annual income of the property.

Then, take the property’s annual rental income and divide it by the price you paid for the property. Then, multiply that figure by 100.

Here’s a helpful example below.

If you bought a property that costs £150,000 and have an expected asking monthly rental of £500, multiply the rental amount by 12 to get to the annual rental amount which is £6,000.

Then, divide the annual rental amount by the property purchase price: £6,000 / £150,000 = 0,04.

Now, multiply this figure by 100 to get to your rental yield percental of 4%. In this instance, your rental yield would not be considered “very good” because it is below 7%. However, “good” yield is anything above 5%.

What Areas in the UK Offer the Best Rental Yields?

According to SDL Auctions in the UK, there are certain areas (or cities) where it is better to invest in buy-to-let properties because they generally offer a greater return on investment.

Below is a brief look at the possible/expected rental yields in several of the more popular UK property investment areas.

These are average property costs and yield percentages based on information drawn from the likes of Home.co.uk and Zoopla in 2021 and without taking into account mortgage costs.

City/Area Property Value Possible Rental Amount Annual Rental Yield Percentage

• Manchester £202,734 £1,232 £14,784 7.29%
• Birmingham £205,703 £1,145 £13,740 6.68%
• Portsmouth £242,330 £1,427 £17,124 7.07%
• Bradford £133,580 £555 £6,660 4.99%
• Nottingham £226,877 £1,376 £16,512 7.28%

FAQs Regarding Rental Yield in the UK

Below are a few questions that often crop up with investors regarding rental yield in the UK.

How Much Profit Should You Make on a Rental Property in the UK?

While most investors are looking for between 5% and 8% yield on a rental property, it is still a good investment if you’re making 4% or more, as this is where your investment can grow from.

In addition, the property is considered a decent investment if there’s any profit left after you have paid your outgoings.

What is the Average Rental Yield in the UK?

While most investors are aiming for property yields of between 5% and 8% in the UK, not everyone can afford properties that can produce such yields.

If you take a clear overview of all the areas and their associated yields, you will notice that the average rental yield in the country sits at approximately 3.63%.

Is There a Way to Increase My Property Rental Yield in the UK?

Many landlords and investors want to find ways to change their low or good rental yield to something higher and more profitable.

This is entirely possible if you’re willing to put in the effort to make your rental property more sought after than the bog standard rental.

If your property is more sought-after, you can charge more rental and therefore make a larger profit. Below are just a few ways that you can increase your property rental yield.

• Review your property-related expenses and find ways to cut those costs. For instance, building insurance, accessories (lights, fittings etc.), services providers – all of these costs can probably be whittled down.
• Provide free internet access to tenants.
• Convert your property to a green property – eco-living is on the rise.
• Maximize storage space (cupboards, shelving, etc.).
• Consider allowing pets (of course, only if your property is geared towards it).
• Keep the property well maintained and feature modern fittings (this attracts tenants).
• Buy property in an area close to public transport and other services and shops.

Is Renting Out UK Property Profitable?

Renting out property in the UK can be profitable due to recurring income, property value appreciation, and tax benefits.

That said, you could be faced with expenses along the way that dip into your profits or even deplete them. Think about a broken air conditioning or heating system or a fire breaking out.

How Can I Calculate My Actual Profits Inclusive of Costs in Monetary Value on a Rental Property?

Preparing a cash flow statement is an excellent way to see how the figures work out in the end. Below is an example of a very basic cash flow statement to help you understand how it works. (These figures are simply examples and may be unrealistic in terms of UK property prices).

Property purchase price: £100,000

Deposit paid on the property: £25,000

• Expected gross income on rental: £900

• Possible vacancy loss at around 5%: £45

The effective gross income in this scenario is £855

• Possible repairs around 5%: £45
• Property management costs of around 8%: £72
• Property tax, insurance and other costs: £180
• Principle and interest (mortgage expense): £320

In this scenario, the projected monthly profit before tax is £238.

Rental Yield Calculator Final Thoughts

Using a rental yield calculator online can help you determine the expected return on investment in terms of monthly profits.

But, of course, it’s best to factor in all additional expenses you may face, understanding better what to expect in terms of profits.

It makes perfect sense to own property with another person in some instances.

Perhaps you’re married and want to invest in property together, or perhaps you simply want to invest in property with a group of people for profit.

Either way, when people consider buying property together, they worry about what kind of joint ownership they should have.

There’s also a question of whether a tenancy in common would be a viable route to take.

This article provides an overview of tenants in common, what it is, how it works, and covers some FAQs.

What does  “Tenants in Common” mean?

Tenants in common refer to being part of a tenancy in a common contract – this means two or more people are owners of the property.

This is basically when two or more people have an interest in the same property and can leave their share to a beneficiary at the time of their death.

This doesn’t mean that you own a separate part of the property but merely have a different proportion in terms of monetary value.

For instance, you may own 60% of the property, whereas a friend of yours owns 40%.

If You Want to Buy Property with Family or Friends, Do You Need a Tenancy in Common Mortgage?

Here is the good news, if you choose to buy a property with a family member or friend, there’s no need to have a special tenancy in common mortgage.

Instead, you simply need a regular mortgage and must make use of a solicitor to draw up legally binding ownership arrangements.

Joint Tenants vs. Tenants in Common – What’s the Difference?

Whether you decide to be joint tenants or tenants in common will come down to several things, such as the individual you wish to co-own real estate with and, of course, your specific situation.

However, if you want to avoid facing issues in the future, it’s important to carefully consider which of the two options is ideal for you.

To ensure that you’re able to make an educated decision, consider the main differences between joint tenants and tenants in common. These are explained below for convenience:

• Tenancy in Common

When there’s a tenancy in common agreement in place, when one of the owners become deceased, the portion of their property is passed over to a named beneficiary in their last will and testament.

Another thing to note is that tenants in common own a percentage of a property. This is helpful in instances where one owner will contribute more money than the other in the deposit or even the total cost of the property.

With a tenancy in common, a new co-owner can be added to the tenancy in common at a later stage. A new co-owner can be added even years after the original tenancy in common is set up.

• Joint Tenancy

In the case of a joint tenancy, when one of the property owners passes away, the ownership portion is automatically given to the surviving partner, even if the co-owner has stipulated otherwise in their will. This is called Rights of Survivorship which is specific to joint tenancies.

Another thing to note is that joint tenants each own the whole value of the property. That means they both own 100% of the property.

As all the joint tenancy owners are listed on the same title deed, and they are seen as one legal entity, it makes sense that the property simply remains the possession of the surviving partner when one party passes away.

Of course, this means that all parties must enter the agreement at the same time.

Rules that Apply to Both Tenants in Common & Joint Tenancy

When trying to decide between a tenancy in common and joint tenancy, you may wonder what rules you may have to adhere to. Below are two rules that apply to both types of property ownership contracts:

•  The property cannot be sold unless both co-owners agree to it.
• Co-owners must sign a joint mortgage instead of taking out separate mortgages.

Percentage Ownership Options Pertaining to Tenants in Common

When it comes to, joint tenancy each co-owner owns 100% of the property. It’s a little different from a tenancy in common in that you each own a different proportion of the property.

Together, this adds up to 100%. How you work out the percentages will be up to you and your co-owners. The percentages of ownership should always be stipulated in the agreement because if it is not, it is legally assumed that each owner has an equal amount of ownership shares.

Can I Transition From Sole Owner to Tenants in Common or Joint Tenants?

Property owners who want to include a new owner on their property can change their sole ownership to tenants in common ownership fairly easily. It is also fairly simple to transition from joint tenants to tenants in common.

To change to a tenancy in common from a joint tenancy, the owners must go through a “severance of tenancy” process and then apply for what is called a “Form A Restriction. This is sent to the HM Land Registry’s Citizen Centre for review.

Here’s the interesting part! If you wish to change to a tenancy in common from a joint tenancy, you don’t need to obtain permission from all owners.

If you can’t agree, you are entitled to serve the other others notice of severance. You will need to acquire the relevant forms and ensure the required supporting documents. It’s best to work with a solicitor or legal executive, which will cost you.

The process itself, however, is free. Using a solicitor ensures that everything is handled legally and above board – safeguarding both you and the other parties.

While some people may see no immediate reason why they would ever need to make changes to their ownership format, it’s best to err on the side of caution.

There are instances where changing the ownership format and contract makes sense. For instance, if you plan to separate or divorce from your partner or if you wish to leave a portion of your property to another person.

Expected Disadvantages of Having a Tenancy in Common

One thing to be aware of is that the tenants in common contract is not well suited to every person.

It’s best to consider all of your options and the possible disadvantages before determining if this is the right course of action for you.

There are disadvantages to be aware of before you get yourself into such a contract. These include:

• If one of the property co-owners passes away and doesn’t have a will in place stipulating their beneficiary, the property will go through probate, which is costly and a lengthy process.
• If you co-own the property and one of the co-owners wishes to sell the property and you don’t, you may be served with a partition action. This could mean that you’re forced to sell the property.

It’s best to be aware of these disadvantages before getting into a tenancy in common to avoid these particular risks.

Tenants in Common Final Thoughts

Tenants in common can be a great ownership option for two or more people who wish to co-own property together.

That said, before you jump into the agreement, make sure that all parties are aware of how it works, what to expect, and the associated risks along the way. This will ensure that there are no nasty surprises or any confusion along the way.

For most borrowers, the buy to let mortgage can seem like the proverbial pipe dream due to the stringent eligibility criteria imposed by lenders.

But there are lenders out there with a more flexible approach who may even consider dealing with a poor credit history.

It is simply a case of researching the market to see which lenders will consider your application.

General Eligibility Criteria

• Many mortgage lenders will use the below criteria to assess if a borrower is eligible for a buy to let mortgage.
• Credit History
•  Deposit
•  Income
• Borrower status
• Age
• Property Usage

Let’s look at the buy-to-let mortgage criteria in more detail.

Credit History

Generally, lenders will be cautious of borrowers with a bad credit history. Types of bad credit that may affect your application include county court judgments, IVA’s (Individual Voluntary Arrangements), late payments or payment defaults.

Borrowers with a bad credit history should look for lenders who offer guidance and assistance for buyers in their situations. Specialist lenders can help with these situations and should be able to provide the advice you need.

Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

Deposit

Unfortunately, buy-to-let mortgages attract a higher deposit than residential mortgages. Additionally, bad credit and build type could affect the risk element of the mortgage agreement. This may increase the deposit lenders will require as a safeguard for themselves.

The standard LTV (loan to value) ratio on BTL’s is 75%, but some lenders may offer between 80-85% depending on their flexibility. Therefore your deposit value will typically sit at around 15%, but it can be more than that in some instances.

Income

Lenders will review your income to check you can afford the mortgage repayments if you don’t manage to find tenants. Some lenders expect a minimum income of £25k on a buy-to-let mortgage; this applies particularly to first-time landlords.

This doesn’t mean a BTL mortgage is off the cards if your income is lower than £25k, as some lenders will accept those on a lower income. It’s also possible to find lenders who don’t require a minimum and base the mortgage on the property’s rental potential!

These lenders are usually comfortable if the rental expected will cover the mortgage repayments by approximately 125-130%. However, this percentage can be higher for higher rate taxpayers.

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Other Income Considerations

• Type of income

Lenders who stipulate a minimum income will want information on how you generate your income. While a full-time position is their preferred income method, you can still obtain a decent mortgage with other forms of income such as contracting, pension income or self-employed income.

• Outgoings

Lenders typically offset your income against your outgoings. For example, a large outstanding loan would probably cause the lender to cap the amount you could borrow for the mortgage.

• Proof of income

Buy-to-let mortgage lenders may request proof of income, particularly if they impose a minimum earning requirement. In addition, lenders will want to see that your expected rental income for the property is realistic and will cover the mortgage repayments.

For this, you will need to provide written proof from an approved ARLA (Association of Residential Letting Agents), letting agent.

• Borrower Status

Are you a landlord or a first-time buyer? As a first-time buyer, it may prove challenging to pass the eligibility checks of the lender.

However, some lenders are more cautious of established landlords with extensive property portfolios. This means they may limit the number of buy-to-let mortgages a buyer may have, while others will set no limits at all.

• Age Restrictions

Age can be a mitigating factor when looking to obtain a buy-to-let mortgage. The minimum age for mortgage applicants in the UK is set at 18 years, but some lenders set this higher at 21-25 years.

Some lenders have a maximum age cap of 75 years, while others set theirs at a much higher age of 85 years. This method of thinking is in line with the number of years a person is forecasted to be in gainful employment and thus able to pay the mortgage.

Finally, some lenders don’t have age restrictions in their BTL mortgage eligibility criteria.

Property usage

How you intend to use the BTL property will also be a deciding factor for the lender. Most lenders will be comfortable with borrowers offering single assured short-term tenancies to tenants.

However, specialist lenders can assist those wanting to use their buy-to-let home for multiple tenants—for example, student digs, holiday lettings or short term tenancies.

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Repaying Your Buy-to-let Mortgage Using Rental Income

Your mortgage repayments are crucial and cannot be missed. Missed payments can result in being in breach of your mortgage, which can negatively impact your credit score, and you could lose the property.

When calculating how long it will take you to pay off the loan, use the rental income from your tenants against the actual loan term.

Example:

A mortgage loan of £100 000 would take 18 years to repay with a 4% interest rate if the rental income used was £650.00 per month.

Selling to Settle the Debt

Many borrowers plan to sell their properties at the end of the loan term to settle the outstanding balance. If this is your intended plan of action, you should select the most extended loan term the lender will reasonably offer to you.

This allows the property to increase in value, and once sold, the funds will cover the outstanding balance and will have generated a profit.

Other Ways to Settle a Buy-to-let Mortgage Debt

If you plan to keep the property at the end of the mortgage term, there are other ways of settling the outstanding debt. Often termed as repayment vehicles, borrowers can choose to use investments, savings, stocks, shares and even the sale of another property to repay the debt.

Final thoughts

Lastly, obtaining a buy-to-let mortgage market may be challenging for those who don’t own a residential home; but, it’s not impossible. If borrowers can fulfil the lender’s requirements, a buy-to-let mortgage can be a reality.

However, certain circumstances such as bad credit may require a specialist lender’s services. Don’t despair; flexible lenders are out there and will be happy to assist.

Call us today on 03330 90 60 30 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Renting out property is a big financial decision and responsibility at any time, but where a family are involved there are additional factors to consider including if the type of mortgage in place permits that the property is rented.

Buying a property to rent out can be a great investment however over recent years the legislation has tightened up regarding the requirements needed to rent property including energy efficiency, health and safety and right to rent rules.

This guide will discuss the considerations involved with letting out the property to family members.

Mortgage Types and Renting

Should a property be owned outright and therefore there is not a mortgage lender involved, the homeowner can decide who he or she rents out the property to.

However, should a standard residential mortgage be in place against a property that a homeowner wishes to rent out, permission would need to be sought from the mortgage lender.

Not every mortgage lender would approve a current residential mortgaged property to be rented out, especially to family members and therefore it may be necessary to switch mortgage products or lenders to enable the lease.

If a property with a standard residential mortgage is rented out without the necessary permission, it is likely that the mortgage terms would be broken, which could incur penalties.

The most appropriate type of mortgage for renting our property would be a buy-to-let mortgage.

Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

What is a Buy-to-let Mortgage?

A buy-to-let mortgage is a specific financial mortgage product designed for investors who wish to let out a property, and not live within it.

Typically, a buy-to-let mortgage will have the same options as a standard mortgage such as various interest options from fixed rate, variable rate and tracker mortgages, however, the interest rates can be higher with a buy-to-let mortgage.

One difference with a buy-to-let mortgage versus a standard mortgage is that buy-to-let mortgages often require high deposits, usually between 25% and 40% loan to value rate.

There are different types of buy-to-let mortgages including an interest-only option, which is very common with investors, to be able to keep the monthly mortgage repayments low.

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Where the property is planned to be rented out to a family member, a specific type of mortgage would be recommended, a regulated buy-to-let mortgage.

The buy-to-let mortgage market is not regulated by the FCA, however as lenders see letting out the property to family members as an increased risk, the mortgage needed would fall under tighter guidelines than a common, unregulated buy-to-let mortgage.

Typically regulated buy-to-let mortgages will not have the most competitive interest rates and there will be a smaller selection of lenders offering this type of mortgage product and therefore the use of a mortgage broker may be the best approach to seek the most favourable interest rate and terms.

The criteria and terms of a buy-to-let mortgage will vary between lenders however often lenders of regulated buy-to-let mortgages will be interested in the affordability of the borrower, more than the level of rental income available.

Second Home Mortgages

An alternative option to a buy-to-let mortgage could be a second home mortgage.

This type of financial mortgage product works in the same way as a standard mortgage, however, the lender is aware that the property is not the main residence of the borrower.

Again, permission would need to be sought from the lender to rent the property out to a family member.

Not all mortgage lenders offer second home mortgage and therefore a mortgage broker would be best placed to advise the options available.

How much can be borrowed?

Both typically buy-to-let mortgages and regulated buy-to-let mortgages would review the possible rental income from the property, by accessing the open market rental value.

As a rough guide of the lending criteria, the rent should cover 125%-145% of the mortgage repayments. However, as briefly mentioned already, with a regulated buy-to-let mortgage, the affordability of the borrower will also be a factor to the lender.

The amount that can be offered by a lender will also depend on the deposit available to be put down by the borrower. Typically, a borrower should expect to have a deposit of at least 10% of the purchase price, and for a second residential mortgage, at least 25% deposit for a buy-to-let mortgage.

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What should I Consider When Renting to a Family Member?

• Contract – Although you might not think it is necessary to put a proper contract in place when renting property to a family, it is highly recommended that you do so. When someone makes regular payments for a service, it could be seen that an unwritten tenancy agreement has been put in place, protecting the tenant and therefore a contract is recommended to protect the rights of the landlord.
• In addition, should the property have a regulated buy-to-let mortgage in place, then the lender will require that an assured shorthold tenancy agreement (AST) contract is in place.
• Tax implications – No matter who the property is rented out to, stamp duty would need to be paid on the purchase of the property and rental income will still need to be reported for income tax and capital gains tax reporting.
• Maintenance costs – Another reason to ensure that a contract is put in place is to have a written agreement listing who is responsible for the costs of repairs and maintenance. It is highly recommended that an agreement is put in place to ensure that there is no grey area regarding responsibilities, which can result in disputes.
• Insurances – Insurances will be required covering both the property itself (often, building insurance is a requirement of the mortgage lender), and the contents. Again, it would be worth clarifying who is responsible for the insurances within a contact.

Can I buy a house and rent it to a family memory summary

Buying a property to rent to a family member can be complicated and should be researched thoroughly before making a commitment.

As we have discussed, a buy-to-let mortgage is quite different to a standard residential mortgage and therefore there are many factors to review, including the level of rental income that could be gained, both on the open market and via a family member as well as the tax implications.

Borrowers exploring this option are highly recommended to obtain independent financial advice, ensuring that the best financial product is sought for the personal circumstance and that their interests and investments are protected.

Call us today on 03330 90 60 30 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Portfolio mortgages are a relatively new type of financial product designed to streamline landlord finances.

Multiple recent, and additional forthcoming tax legislation changes have resulted in reduced tax reliefs available for landlords to claim, and therefore many sole trader landlords are considering changing their business profile to a limited company and researching portfolio mortgages.

This guide will explore the purpose of portfolio mortgages as well as common application criteria and benefits of this type of finance.

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What is a Portfolio Mortgage?

Portfolio mortgages have been designed to simplify the finances of landlords by pooling all of their buy to let mortgages under one financial product.

Portfolio mortgages act as one single account managed by one lender and therefore have one monthly payment. The benefits enable simplified cash flow management, as all mortgage payments are consolidated, but also could reduce banking and transaction fees.

Most lenders will have their own definition of a property portfolio holder, however, generally, the term is associated with landlords that let out a minimum of four properties.

Portfolio mortgages are suitable for landlords who have registered as a limited company.

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Related reading? 

• Repayments on £80,000 mortgage. 
• Interest-only mortgages.
• Zero deposit mortgage.
• The first mortgage explained.
• What stops you getting a mortgage in the UK?

What are typical Portfolio Mortgage rates?

As lenders take on more risk by mortgaging an increased number of properties, the mortgage interest rates tend to be higher than those offered by traditional methods. Also, lenders take the consideration that if a limited company owning a property portfolio goes bust, lenders often find it very difficult to recover the debts.

Although, saying that, as portfolio mortgages become more common, the interest rates offered will become more competitive.

Portfolio mortgage interest rates are calculated by reviewing the existing rates across the entire portfolio.

For example, with a traditional buy-to-let mortgage, each property would have its own interest rate, but these would generally be averaged with a portfolio mortgage.

In addition to the minimum four properties within a portfolio, lenders will often require other criteria to be met such as requiring the portfolio to have a minimum of £500,000 worth of value.

The rental income generated from the portfolio is usually required to be between 120% and 140% of the loan repayments also.

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Advantages of Portfolio Mortgages

As with any financial product, there are many considerations to take into account when reviewing if it is suitable for the requirements and if it is cost-effective.

There are a number of advantages that are associated with portfolio mortgages as follows:

• Tax efficiency – The use of portfolio mortgages enables limited companies to manage their tax liabilities in the most efficient way by treating the entire portfolio as one, rather than paying tax calculated on net income. This enables landlords to retain funds within the portfolio for renovation purposes or for further property investments and subsequently pay a lower rate of corporation tax due to the accounting treatment of expenses.
• Simplification of finances – As already mentioned, a portfolio mortgage incorporates all buy-to-let mortgages into one and therefore reduces the number of payments. Also, one lender is used and therefore communications become simplified and easier. Another benefit of having one streamlined mortgage for an entire portfolio rather than individual mortgages is that underperforming properties can be hidden within the pool, as long as they are offset by the rest of the properties. This can be helpful as often underperforming properties can ring alarm bells for lenders who in turn may monitor the landlord more carefully to assess their risk.
• The utilisation of equity within the portfolio – As the finances of the portfolio are managed as a whole, the equity can be utilised to finance additional investment by further borrowing against the equity within the portfolio. This can enable the growth of the property portfolio with little or no cash deposits which helps the cash flow.

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Disadvantages of Portfolio Mortgages

The disadvantages would really depend on the individual circumstances of the landlord, and the current business set-up.

For example, if the landlord was not already registered as a limited company, this additional administration step would be required before an application for a portfolio mortgage which can take both time and money.

Meeting the portfolio mortgage criteria may be a hurdle for some landlords and therefore this would be a consideration when reviewing financing options.

Also, if the portfolio finances are not in such good shape, having one mortgage payment a month may not ease the cashflow situation as individual mortgage repayments may currently be spread out across the month.

However, if mortgages are already in place funding the properties, there are not any additional risks to the landlord by moving to a streamlined structure such as a portfolio mortgage.

As with any mortgage product, the risk is on the property owners to make the repayments otherwise the properties associated are at risk of being repossessed by the lender.

With a larger portfolio, obviously, these risks are greater, however, landlord insurance can be put in place to minimise the financial risks of unlet periods.

Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

Portfolio Mortgages Summary

As every landlord’s circumstances and background will differ due to many factors such as the number of properties within its portfolio, and how the portfolio is managed; either directly or by a management company or the equity level, landlords will require specialist advice on the best approach to managing their finances.

Also, as a portfolio mortgage is a relatively niche financial product, a specialist mortgage broker would be required to review the individual circumstances mentioned above, and the market conditions in order to provide tailored advice.

It is always worth seeking independent financial advice during the review stage, for example before any current fixed-term mortgage rates expire before committing to any future financial decision.

Also as mentioned throughout this guide, the finance products are chosen, and the business structure can have tax implications therefore any decisions should also be taken into account with tax and business planning considerations.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Over recent years, as the property market has developed and the rental market has boomed, it has become increasingly common to switch from a residential mortgage to a buy to let mortgage.

If you want to make the switch from a residential mortgage to a buy to let, you will need to seek consent from your current lender.

If they decline your request, you may have the option to remortgage with a new lender. This may incur charges.

Converting your mortgage depends on the following factors:

• Current type of mortgage.
• Consent of the lender.
• Other mortgages you have.
• The plans you have for the property.

How to convert your mortgage to buy to let

Switching your mortgage type can have major financial implications and so it’s important to do your due diligence. If necessary, make sure to consult a mortgage advisor to have any questions answered. You can contact us today for a free no-obligation chat.

A buy to let mortgage and a residential mortgage are very different, for example, you may be able to increase your rental income, where this would not have been an option with a residential mortgage.

If you are considering changing your mortgage with your current lender, be aware that you will only be presented with their rates. Our mortgage advisers will be able to search a wide range of different UK lenders to find you a range of competitive deals.

Common switching from residential to buy to let scenarios

Buying a new home and switching your existing home to a buy to let

Converting a current residential mortgage to a buy to let and then buying a new property is common. Often, these are referred to as let to buy mortgages, the principle is essential that you rent the property rather than selling it.

Remortgage to a buy to let 

If your request to switch is rejected by your lender, or it’s not suitable for your situation, you may have the option to remortgage to a completely new product with a different lender.

For example, if you want to use your existing home to fund the purchase of your new home, the rental income could then be used to reduce payments on your new residential mortgage.

Another common purpose for wanting to remortgage and switch is if you paid a higher price than your properties current value. Remortgaging to a buy to let allows you to hold the property and wait until it goes back to a value at which you would consider a sale.

Common reasons people convert from a residential to a buy-to-let mortgage

There is a range of scenarios that could lead to a homeowner seeking to switch the type of mortgage they have in place including:

• Inheritance – A homeowner could inherit property and move into it, therefore leaving the mortgaged property empty and available for letting out. Other factors could be at play within this scenario such as inheritance tax.
• Property not selling – Should property a chain breakdown, but a homeowner be able to continue to purchase their desired property in other ways, the result could be that the original mortgaged is not sold at that time. The homeowner may wish to explore a rental income from the property for a set period of time before attempting to sell on. Market conditions could be at play delaying the sale such as a dip in the market or changes in government schemes such as stamp duty.
•  Temporary Relocation – A homeowner may be required to relocate for a set period of time for reasons such as a job opportunity or family circumstances. The result of which may be that the homeowner moves into rental accommodation at the new location, leaving the mortgaged property vacant and available to let out.

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What is a Buy to Let Mortgage?

A buy to let mortgage is a financial product specifically targeted at investors who plan to let out a property, and not live within it.

Buy to let mortgages often require high deposits of between 25% and 40% loan to value rate and can have high-interest rates attributed to them in comparison to standard residential mortgages. Buy to let mortgages can also have higher lender arrangement fees.

There are different types of buy to let mortgages, however, most investors seek interest-only mortgages. With this type, the monthly repayments cover the interest due only, and therefore the capital balance remains at the end of the mortgage term.

Interest-only mortgages carry higher risks for the lender and therefore may often have higher interest rates. Like standard mortgages, buy to let mortgages can be obtained with varying terms in relation to interest such as:

• Fixed-rate – Usually fixing the interest rate linked to the mortgage for a set period of time, often between 2 and 5 years.
• Standard variable rate – This is the long-term interest rate often applied once an introductory offer ends on a mortgage.
• Tracker – A tracker rate follows the Bank of England base rate at a set percentage higher and will vary if interest rates change.

The criteria and terms of a buy to let mortgage will vary between lenders however often lenders will require that the rental property income is higher than the mortgage payment each month.

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Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

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Other Considerations

There will be many other factors to consider when researching letting out a property including:

•  The costs of renting out the property – A decision of whether to use a letting agent or not to manage the processes of renting the property from advertising, undertaking viewings and the necessary legal checks on the tenants. Should a letting agent be used, the fees of their services will need to be factored into the business plan of the investment.
• Maintenance costs – The costs of repairs and maintenance will be factored into the calculations of the costs.
• Insurances – Buy to let insurance covers the property itself, its contacts as well as landlord liability. Building insurance is also likely to be needed as a lending criterion.
• Taxes – There is a range of taxes to consider when renting out property including; income tax, capital gains tax and the initial stamp duty due when purchasing a property.
• Missed payments, rental disputes and periods of unoccupancy – An investor should also consider the consequences of situations when rental income does not materialise either due to a dispute, personal circumstances changing of the tenants or through periods of unoccupancy.

Switching to a Buy to Let Mortgage Summary

As with any financial decisions, research and consideration of all viable options and other factors at play are strongly recommended.

Borrowers are encouraged to seek advice from an independent financial advisor who is extremely knowledgeable of the different types of mortgages available, their application criteria as well as the market conditions.

As discussed, negotiating with the current residential mortgage lender to switch financial products could often be seen as a simpler process. However the interest rate, terms and fees may not be the most competitive, and therefore by approaching a financial advisor, the whole market can be explored for the best rates and terms.

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As a buy to let mortgage differs significantly from a standard residential mortgage, all factors should be considered, including the likely rental income that could be achieved as well as options to maximise this.

As also briefly mentioned above, tax planning will also need to be considered both on the initial investment and the income received from the rental properties and therefore specialised, personal advice is likely to be invaluable in the long run.#

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Can I remortgage a buy-to-let property?

The answer to this is ‘yes, you can’. However, qualifying for a Buy-to-let mortgage is very much dependent on your circumstances which we will outline in the article below.

Can I remortgage my home to a buy-to-let?

It is possible to remortgage your home to a buy-to-let depending upon the circumstances as you would not be able to live in the property.

Alternatively, you may need consent to let from your existing provider.

Impacting factors on the best Buy-to-let deals

People decide to remortgage their buy-to-let property for various reasons.

Some remortgage to release equity to put towards a deposit on a different property, some remortgage to make home improvements and others remortgage to get a better interest rate.

Your eligibility to remortgage will be dependent on your reasons to do so, the equity in your property may have an impact on rates available to you.

Before a lender will accept your application, they will look at the specific reason for the remortgage before deciding if they will lend to you or not, and if so, how much they are willing to lend you.

To discuss any of the options mentioned below, please get in contact with one of our specialist advisers. We can talk you through the best option for you.

Make an enquiry for a no-obligation chat with one of our remortgage specialists.

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Remortgaging for a Deposit

Buy-to-let remortgaging is useful if you are trying to release equity in order to cover a deposit on another property.

This is common amongst landlords who are trying to increase their property portfolio.

If you have many Buy-to-let mortgages, the lender will examine your entire portfolio to ensure that when it comes to borrowing, you are not overstretched.

Where the lease revenue is not enough, the maximum available loan may be reduced to suit the calculation.

Some lenders, however, enable you to supplement the achievable rental revenue with your own personal income.

Remortgage for Debt Consolidation

Some lenders will consider remortgage applications for debt consolidation but due to the increased risk involved, quite often the amount they are willing to lend is limited.

Typically, a remortgage to clear unsecured debts is typically offered at poor rates than those used for other purposes.

However, in many cases, this can still be advantageous, especially if the interest rate is lower than the interest on your debts and monthly repayments.

Improving your Interest Rate

Similar to a residential mortgage, improving your repayment terms is a sufficient reason to seek a remortgage.  At Mortgageable, we can help you find the best deals on offer for your circumstances.

Converting your buy-to-let to a residence

It’s relatively common for buy-to-let owners to eventually want to move and live in the property they rent, in which case you will need to convert from a BtL mortgage into a residential mortgage.

You have the option to do this via your current lender or seek out a better deal with a new lender.

Changing from a buy-to-let mortgage to a residential mortgage will result in fees, so if you only require somewhere to live for a short period of time, it may be worth seeking a property to rent short term instead.

Factors that will affect your buy-to-let remortgage

Your personal income and buy-to-let remortgages

As with a standard mortgage, lenders may take your personal income into consideration when applying for a buy-to-let remortgage. It is important for the lender to look at your income and assess it against the buy-to-let remortgage criteria. They will use this analysis to decide upon how much they are willing to lend you.

Some lenders have a minimum income requirement that must be met but the level of the requirement is subject to the lender. Some are less than others.

Typically, lenders will consider the following aspects of your personal income when considering your application:

• Basic Income (Wage)
• Benefits you are in receipt of
• Bonuses or Commissions
• Investments that you may have elsewhere
• Dividends

Issues you may face when remortgaging for a buy-to-let property

As with any financial decisions, make sure you do your research before jumping at the first deal you see.

There are a few disadvantages to remortgaging.

Fees can be incurred for switching to a new mortgage which can end up costing you more money than you had anticipated.

You may incur an early repayment settlement fee with your existing lender if you are tied into a rate and pay the mortgage off. Again, this can be an added cost that you perhaps were not expecting.

You can see why it is important that you check through all the conditions on your current mortgage and find out in advance exactly what fees/costs you will incur if you remortgage.

The equity in your property will also determine what monies you could borrow.

Need more information? Read our related quick help guides: 

• Portfolio mortgages.
• Converting residential mortgages to buy to let.
• Buy to let remortgages.
• Buy to let mortgages with bad credit.
• Buy to let guide.
• Can I buy a house and rent it to a family member? 

I have a poor credit history; can I apply for a buy-to-let mortgage?

Arranging a buy-to-let remortgage for customers with bad credit can be difficult.  Below are a few of the issues that may make obtaining a buy-to-let remortgage harder:

• Poor credit score
• History of mortgage arrears
• CCJs (County Court Judgments) IVAs (Individual Voluntary Arrangements) and DMPs (Debt Management Plans)
• Bankruptcy
• Previous Repossession
• Defaults

If you feel any of the issues outlined above may affect your application for a buy-to-let remortgage, then do not hesitate in contacting one of our expert advisers to discuss your circumstances.

All of our advisors are professionally trained and have the expertise to answer any questions you may have about the buy-to-let remortgage process.

Will the type of property I am purchasing affect the buy-to-let mortgage deal I will get?

Most lenders prefer to deal with the ‘standard’ bricks and mortar houses with a slate roof.

The reason being, deviations from this can have a higher risk for the lender, however, there are lenders that will consider non-standard construction.

Below is a non-exhaustive list of properties deemed to be outside of the ‘standard’ construction:

• Properties with a thatched roof
• High rise flats
• Properties with Stone or Felted roofs
• Timber-framed homes

Buy-to-let remortgage rates and how to get the best deal

The list of remortgages available on the market is extensive but the level of interest you will pay is very much dependent on the lender and your personal and financial circumstances.

Those with a good credit history will quite often qualify for a better rate than those with a poor history. Deposit/Equity also has a lot to do with the rate you will get.

So, those with more deposit may end up with a lower rate buy-to-let remortgage deal.

Again, the same applies to the amount of equity you have.

It is important to note here that there are fees that come with the set up of a new mortgage and a lower rate doesn’t always mean that you are getting the best deal.

It is important to look at the cost of the buy-to-let remortgage overall before accepting any deal.

To discuss rates, fees and eligibility, contact one of our specialist advisers who are on hand to help you get the best deal available to suit your needs.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.