Buy to Let – Your Guide to getting started with a Buy to Let Mortgage
Part A
Welcome back to the Mortgages Money and More podcast. I’m Craig Skelton, principal of Says Mortgage Solutions and Retirement Solutions. And today we’re talking about the all star game that was messed up. That was first time I’ve ever done that. All right. Start again, Saga. Welcome back to the Mortgages Money and More podcast. I’m Craig Skelton, principal of Chase Mortgage Solutions and Retirement Solutions. And today we’re talking about parts of the mortgages with mazzella. How much more intriguing?
More than first time on the podcast. So do you want to tell the world a bit about yourself?
Yeah, great. Thanks, Craig. Very exciting and daunting as well. I’m Matt Taylor. I’m a mortgage U.S. specialist with U.S. populations. It’s great working for a company with like minded aspirations. Really. I’d always or first twenty eight to twenty three years worked within the financial services, within a state agency, within banks say is digging deep down. Really, it’s just really days of getting to know my customers so that I can give my best sort of help and advice so the customers get the best deal possible.
And that’s reflected really in everything I’ve done over the last 22 years. And hopefully a wealth of experience will show when I give my advice to customers, 22 years of experience in the financial advice world and one day of experience in the podcasting world.
But you will find out and you’ll be fine. You’ll be fine. So, yeah, got quite a bit of experience behind you and based in Blackpool, enjoying life over there. Absolutely.
Yeah, it’s absolutely lovely. Most days tend to be so here compared to where I used to live in lakes. It’s beautiful. What taking the dog out for a walk in the morning say the sun sets in the evening. Yeah, it’s lovely.
Let’s crack on and let’s talk about today. Buy to let mortgages and that’s what we’re talking about. So do you want to explain, if you can in one sentence, what a buy to let mortgages?
Yeah, a bank mortgage is a mortgage, which is a four year old residential needs a mortgage where you’re looking to buy a property for an investment purpose and a buy to let mortgage just facilitates the purchase for you.
So it’s not for something that you’re going to be living in is something that you’re going to be renting out. OK, so how does a buy to let mortgage work then?
Briefly, I would about that mortgage work I buy to let mortgage works is the property is assessed on rental income, so very much different from a normal residential mortgage where maybe a lender assesses each borrowers of income and go to affordability checks. So I’d like to let mortgage works quite different exercise, really, based upon the rental income, the property that the clients are looking to buy from the formula in a calculation within that which is preventing a way for coming to a specialist like myself.
I want to take a week and sort of talk you through whether that property will meet the sort of guidelines for the different sort of lenders that will facilitate in getting that to go buy into that mortgage with sort of standard residential mortgages.
Then the amount they can borrow is based on using your expenditure, your debts and things like that. Whereas with Bitstamp mortgage, what you’re saying is it’s based on the rental income.
Some mortgage lenders do have savings or asset barriers where you need to set criteria, for instance. So lenders, when they are looking to meet maybe earning 20000 or 30000, there are some lenders out there where they don’t have any set income levels. Again, that’s part of what I do within the sort of role in terms of advise you with the best deal or the best options when it comes to the buy to let when you said before about some weird calculator in terms of the have the lenders will based the affordability or what you can borrow based on the rental income.
So is that some sort of a you said it’s a weird calculator. Is that is there any solid basis on that or how roughly how does that work?
It’s called an icy rental calculation, so an income coverage ratio and each mortgage lender has it just slightly different than I think is a way for them to make sure that they protect themselves if they claim doesn’t get a landlord to get the tenant.
Yet it’s an of property. So they’re very much a case of for instance, I can talk you through one particular lender and their calculation if you like me to.
I think it’d be good just to get a rough idea.
Obviously, I totally accept what you say, where people if I’m thinking about back to that property, then I do need to speak to someone like yourself that will go through the calculations and things like that.
If he can get a brief, like just an idea of how that works, because they sit down to, like, give you a basic rate taxpayer or a higher rate taxpayer that comes into play as well, doesn’t it, by any property on the basis of.
The taxation part is very important. That’s why they sort of keep things on the set of calculations. OK, if you’ve got a quick calculation to hand, that would be beautiful. I like I know it’s important that somebody sits down with somebody like yourself and goes into a bit more detail because you will look at all the lenders in each line, does a different calculation. If you could just explain like a typical one, that would be great.
Yeah, absolutely. Craig, for instance, the NatWest are their stress test, which is a 5.5 percent. They own a property, which is a loan size of 80000, and it’s a purchase price at, say, one hundred twenty five thousand. So the long term value of that is about 75 percent. With NatWest, they are looking for a potential quiet of around three point sixty seven pounds. And I think one of the survival of my clients, who until recently and that was a similar, quite similar scenario, I think he was expecting a ring of about 550.
It just sort of gives you a little bit an idea of what rent he may need, depending on the deposit and the mortgage amount needed for each different particular lender. Fine.
OK. So it’s important from a rental point of view, not only just about getting the property and getting their property at the right price is making sure that the rental of that particular property stacks up as well. So that gives a good idea to professor. Thanks very much for that. You said something before about clients income. So with bachelors, is this the client’s own personal income import?
And when if I was looking to buy to that property, it is definitely because I think most mortgage lenders, whether it’s residential or whether it’s banks that still want to make sure that the mortgages affordable, just for instance, if you don’t have a tenant for the time, the mortgage lenders want to make sure that the mortgage is still affordable and they still can be paid. However, different lenders have different sort of set criteria. So lenders have a very small criteria and they just want to make sure that you’re working and that income is coming through the door of a mortgage.
Lenders, they as I said before, they set up a set amount saying you must earn X amount of money. Before that, they will look at offering you a baseline mortgage. That’s all part of this process, really, of coming to myself, because, again, all the different aspects of that sort of really reflects on the sort of rental income I was assessed your income details and also the deposit that you put down. And that’s where experts unselfconscious and narrow get you the best provider, the best deal for your mortgage.
So if I’m clear from a client point of view, there are some lenders that I don’t need to earn any money. There are some lenders where you can earn a little amount and then there’s some lenders where they require that you earn a certain like like you said, about twenty five thousand. So I think it’s important just to discuss with somebody like yourself, where do you go? If you don’t have any income and you’re looking to buy to that mortgage, then that’s still OK.
There are still lenders out there that will lend you the money just obviously from a formal point of view, which just means that this time the less lenders in the marketplace, they’ll look to do that.
So don’t be concerned if you’re a first time landlord either, because first time landlords won’t scan the property market. Recently I had a claim they didn’t always own property, but you wanted to a rental property because the property it was living was rent for any circumstances. It will need to buy a buy to let for the investment for himself and its future ties.
On then to to my next question really when. So if I don’t you talk about first time landlord and the need to cover that a little bit in terms of what that actually means. So if I don’t own my own property, I’m in rent at the moment, or I’m living with my parents, I live with family or and I don’t own my main residence on my own home. Can I still get a buy to let mortgage then? Absolutely.
Yes, you can. And again, there’s still quite a few providers out there which offer really, really good deals to facilitate that. Definitely.
That doesn’t really want to be putting people off if they don’t own something they still can do. So they say we just at this point, it’s just taking we were the lenders that we work with is just narrowing the formal down to if you’ve got no income, that just narrows the amount of lenders down. If you’ve got if you’re First-Time Landlord, that just narrows it down a bit more. But obviously, from a client’s point of view, it’s just understanding what options are have.
And there are from what you say, then it’s clear to see that there are options out there.
Oh, definitely. Yeah. There’s a lot of options out there. We use all that sort of 50 of the better known lenders as well. We’ve got a lot of options and a lot of top lenders that we’re keen to have access to get some of we need really.
OK, but going back to is I mentioned about that to before the calculation they did, and look at the rental income to be received. You saw said about the deposit you based on twenty five percent. Is that pretty standard. A twenty five percent deposit for a bottle up.
I think 25 percent probably gets you the best deals on the market. However you can, unless there’s quite a lot of ideas out there where you’ll need a 20 percent deposit, probably six months, 12 months ago, there were a few out there where you need to 15 percent as the market is changing and lenders are changing their policy criteria all the time. It’s just really a case of coming and having a chat with me and seeing what’s available at that particular time.
I think they say going back before pre covid, then I think there was obviously more options in the marketplace for that. But there still are options out there with a lower deposit. I think we tend to find that it goes back to the rental calculation again in terms of with the deposit, because if you have got 20 percent deposit but then the rental calculation doesn’t stack up, then you might need to look up on a twenty five percent deposit or even more depend on the situation.
But most landlords, most investors are looking for the minimum that they can put down. So generally speaking, to get the more the most products in the market, you look in a ideally 20 like you say you can do less we could do to an idea you want to be looking at 25 percent. Is that fair to say?
And then you’ve got a choice of the marketplace going back.
One of the other things was about interest only loan repayments, because we tend to find that most buy to let mortgages are on an interest only. Do you want to just quickly explain the difference between interest only and repayment?
First of all, interest only. It’s a very popular amongst landlords, to be honest, when they get advice about mortgage interest, only quite often if you took a mortgage out, for instance, of the hundred thousand pounds in your property that you’re buying worth, say, one hundred fifty thousand pounds a year, receiving rental income every month from that property, then all you will be doing is paying interest on that mortgage at, say, a hundred thousand pounds for the term of the mortgage and return.
You would still have a hundred thousand pounds left. So what a lot of landlords tend to do is either sell, sell the property and then they’ve got whatever the property’s either increased in value or decreased. Hopefully it would increase. Many landlords tend to use that method. However, some landlords prefer to go down a commercial interest basis. How that works, let’s say the hundred thousand pound mortgage from day one on a 25 year term in the early years, you’ll pay a majority of interest with a small amount of capital.
Then towards the end of it twenty five years, you’ll start making larger repayments to capital and at the end of the twenty five years, and you know that the mortgage is fully repaid and there’s no risk involved if the property is if you need to sell property or if you’re going to lose money or maybe nothing to sell the property to eager to repay the loan.
There are landlords and most landlords do interest on it. But there’s nothing that you can’t do repayment when you’re looking at a bar to to know that the after the term 25 years or whatever the case may be, then the mortgage is paid off. Or if you do the interest only, which is the more popular one, then you’ve still got the capital to to pay off at the end of the term. Going back to the term, what is the term important?
So when we talk from a Lumos point of view, what do it normally twenty five years, does it vary?
It varies completely in buy to let mortgage terms are very flexible. They can go up to a maximum of 40 years, a minimum of five years or even less. But it’s really just down to your circumstances. If you’re taking a mortgage over on an interest only mortgage, the term is just really there as it’s the same going on whether or when you will sell that property to repay your mortgage if his interest only then the terms of development really is relevant, but ultimately is irrelevant on the fact that there’s no there’s no you’re not paying off the capital anyway.
Yeah.
And I think the term sometimes we have quite a lot of the older investors and they’re a little bit worried that there’s a sort of a maximum age cap there is on the residential mortgages. That’s not the case as much we sort of buy to let lenders and we get quite a lot of the sort of people who are more mature, who are wanting to go down the banks route in terms of the standard residential mortgage, where you’re looking at two year fixed, three year fixed, five year fixed, even 10 year fixed.
Now with some of the lenders, is that the same concept with a buy to let mortgages? Are you still looking at a two year fixed, five year fixed, depending on the client’s situation and what their needs and wants are absolutely very similar to residential mortgages.
They the rates tend to be a little bit higher than maybe their standard residential. You probably may be looking at maybe nought point eight. So basis points more than a standard residential mortgage in years gone, the rates used to be substantially higher. But I think the markets have already classified and the products are so really sort of low compared to what they have been in years, gone past, which is. Really, really competitive. OK, brilliant, and is the process the same with a bite that mortgages is a standard residential from a point of view of you looking for you find a property you’ve applied for, you’ve got your deposit, you find your property, you apply for the mortgage.
The survey’s instructed solicitors are involved is that promotes a similar sort of process completely.
There is a normal sort of residential mortgage where my clients were hired recently. They came to myself and I managed to sort of look like me because they were first time investor must look at these different properties which were there in that price range in which they want to cover their rental income and how much as a deposit will want to receive back. So, again, I can sort of help them get them ideas based on sort of rental income, what they may receive, depending on what they’re looking to buy as well.
Perfect. So I’m getting the message that if I’m looking at becoming an even if our first home landlord, an experienced landlord, the first thing I need to do is speak to somebody like yourself that can explain the process and get into a bit more detail about affordability and what rental income to expect and also as well, deposits and stuff like that.
Absolutely. Yeah. Yeah, I definitely recommend them.
Brilliant. Thanks for that.
Is there anything else that we’ve not talked about in terms of that’s relevant with buy to let mortgages just probably we’ve not really touched on maybe existing landlords, maybe quite a few bites, quite a lot of mortgage lenders, they are sourcing them. They said how many banks let’s you can all and that that’s something. Why conserve certainly advise you on that and go down the very well selecting the best seller, the lender which will facilitate your to let needs really brilliant focal point.
Ma’am, we haven’t talked about that, which is a good point. And it goes back to the fact that the best thing to do is to speak to an adviser from from from that point of view. So perfect. Well, thank you for taking the time to be part of the podcast today. And your first one is over and done so you can relax now and chill out a bit. And now you’ve done your first one. You won’t be able to get this from try and stop me from being on there.
Now, I’m sure you’ll be back with more interesting topic. So, yeah, thanks very much for your time today. Hopefully that wasn’t too painful.
No, not too bad yet. Looking forward to the next one. I can hear your teeth greeting from Emma, so don’t worry about that. Thanks very much for stepping out your comfort zone and taking time to be the podcast. Next time, I guess we’ll be Angela Uwins. And we’re talking about first time buyers.
Thank you for listening.
