A Complete Guide to Buy-to-Let Lifetime Mortgages
I think you’ll agree with me when I say…
You can never have enough properties as a landlord. At the rate property prices are appreciating, everyone wants to get a piece of the action. However, you need the funds to purchase them in the first place. If you’re over 55 and you’ve already got a property, you may be able to use that to buy additional estates on a buy to let basis.
Keep reading to find out how…
It’s called BTL Equity Release product, and this guide will carefully guide you through the costs associated with BTLs, their features, and the BTL criteria, terms, and conditions.
If this lifetime mortgage1 services are not what you need though, be sure to check out the guide on ‘Types of Lifetime Mortgages’ and select the plan that suits you best.
With a mortgage, you take out a new loan secured on your home which does not need to be repaid until you die or go into long-term care. A lifetime is when you borrow money secured against your home, provided it’s your main residence while retaining ownership.
What is a Buy-to-Let Mortgage?
True to its name, the buy-to-let (BTL) equity release services is for those looking to borrow against, or purchase a buy-to-let property.
As per various equity release2 services providers, the buy-to-let property is one that is not occupied by the proprietor and must be let out under an Assured Shorthold Tenancy Agreement.
The options provided in this plan are the lump-sum3 or regular income, roll-up, or voluntary regular repayment plan, all on a buy-to-let basis.
Therefore, if you want to start renting a property or are an established landlord looking to extend BTL property investments that will benefit your tax planning and retirement, be sure to get hold of your financial adviser and start making plans.
The mortgage will be paid off in full (including any accrued fixed interest) upon your death and the property will be untouched before that time.
When you die or move into long-term care, the home is sold and the money from the sale is used to repaid off the new loan.
Buy to let remortgage to release equity, many landlords remortgage their investments and release equity to buy another property. Releasing equity with a remortgage is perhaps the most common method used by landlords. You may be able to find a better deal than what you’re currently on and release equity by switching lenders.
If you’re not quite ready to retire and you don’t wish to remortgage, there are alternative ways of releasing equity from you buy to let.
To guard against this, most lifetime mortgages offer a no -negative-equity4 guarantee. With this guarantee the lender promises you (or you beneficiaries) will never have to pay back more than the value of your home.
How Do Buy-to-Let Lifetime Plans Work?
Rather than using your monthly payments to clear your mortgage as you do with the traditional mortgage plans, the BTL option allows you to borrow capital to purchase a property that you, in turn, rent out and receive the rental income payments.
Your plan provider mainly considers the potential rental income of the estate to assess your capability to borrow when you are purchasing a property. It allows them to decide as to whether to approve your secured new loan since that is what you’ll use to make the repayments on the mortgage (most companies will need you to have a rental income of between 25-30% more than your mortgage repayments).
It, however, does not mean that your provider may not consider your salary. With some lenders, if it is your first-time BTL application, they may need to know the amount you earn to make sure you can make the required repayments.
Your provider may also require you to offer evidence of how you intend to pay the mortgage if the estate isn’t let for a lengthy period – which is one of the most significant risks with rental properties. If you can’t give them any assurances, then they will likely decline your application.
As the property has been part of your portfolio for some time, your account will show how the property essentially pays for itself and a lender will be more than happy to consider this when looking at your level of affordability.
Key Features of Buy-to-let Mortgages
BTLs have specific differences from conventional mortgages. Some of these features include:
- Their fees and fixed interest rates5 tend to be higher.
- Their minimum deposit is usually 25% of the property’s value (although it can vary, depending on the lender, between 20-40%).
- Most BTL product is on a voluntary repayment basis. It means that instead of the interest rolling up, this partial plan allows you to repay up to a certain percentage of the original money borrowed each year (dependent on the plan provider) with no penalties.
- The Financial Conduct Authority (FCA) does not most BTL mortgages. There are some exceptions, however, like say you want to let the property to a close family member. These are referred to as a consumer buy-to-let mortgage and evaluated in the same manner as the strict affordability rules of a new residential mortgage authorised.
- The advising, planning, lending and governing of consumer BTL mortgages are covered under the same laws as residential mortgages authorised and regulated by the Financial Conduct Authority (FCA)
Secured loans are often referred to as second rates. Secured loans can be useful for when you want to keep your existing mortgage but don’t want a further advance from the same lender. Rates for secured loans can be slightly higher than mortgages so you must bear this in mind. (Authorised and Regulated by the Financial Conduct Authority (FCA).
Who Can Get a Buy-to-Let Mortgage?
One can acquire a BTL mortgage if:
- You want to invest in houses or apartments
- You can meet the expense of taking and understanding the risks associated with investing in property
- You already own property, whether outright or with an outstanding mortgage
- Your estate’s value must be minimum cash of £70,000 and no more than £6 million
- Your property must be in either England, Scotland or Wales
- You have an excellent credit record and aren’t stretched too much on your other borrowings
- You earn cash of £25,000+ a year. If you earn less, you might struggle to get a lender to approve your BTL plan
- You’re over 55 and not over 90 years of age
Any other qualification criterion will depend on the plan provider you choose.
Interest is charged on what you have borrowed, which can be repaid or added on to the total loan.
You get a lump sum or are paid a regular monthly rate, and get charged interest which is added to the loan.
Rather than one big loan, as it means you only pay interest on the money you actually need. There might be extra costs for paying off your loan early, known as “early repayment”.
What is the Cost of a Buy-to-Let Mortgage?
Before you go ahead to take out a BTL, it is vital you know the costs involved in taking one out for proper budgeting. These costs include:
- The financial adviser’s fee – your adviser will assist you in setting the plan in motion
- An arrangement fee – for your lender
- The solicitor’s fees – you need legal representation
- Property valuation fees
According to most lenders’ quotation charts, these costs can add to about £1,500-£3,500. However, you might have to pay extra expenses if you opt to make ‘early repayment charges.’
How Much Can You Borrow with the Buy-to-Let Lifetime Mortgage Plan?
The amount you borrow depends on your circumstances, property portfolio and your plan provider. As per most equity release companies,
- The youngest homeowner has to be over the age of 55
- The minimum value of your property needs to be £70,000 cash
- Your health and lifestyle – if you have any qualifying medical conditions. You have the right to borrow more capital.
So, to give a rough estimate, you can release between 20% and 50% of the equity in your residence.
However, when it comes to deciding the exact amount of equity you can unlock, you can use our free buy-to-let calculator so that it can give you an indication of the amount you can borrow.
Adverse credit is a term used to describe a less-than-perfect record of repaying credit commitments. i you have adverse credit it could mean that you have negative payment information on your credit report.
Many borrowers in circumstances where they have dab credit on their files worry that it will have a negative affect on their ability to get approved for a buy-to-let equity release mortgage.
Real estate is the most assured investment, and thus, buy-to-let plans were designed to help you not only enjoy financial freedom in your retirement but also to enjoy the benefits that come with owning a buy-to-let property.
Looking for a different type of mortgage? Read this now online article ‘Types of Lifetime Mortgages’.
What are you waiting for?
Look up your financial adviser online right now and get them to walk you through the application process. You can never have enough investments!
If you need more information about the terms on BTLs though, be sure to click here to see how much equity you can release and chat with an expert for free.
How much money could you release?
A lifetime mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.