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, and this guide will carefully guide you through the costs associated with BTLs, their features and the BTL criteria.
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What is a Buy-to-Let Mortgage?
True to its name, the buy-to-let (BTL) equity release plan is for those looking to borrow against, or purchase a buy-to-let property.
As per various equity release plan 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-sum, roll-up or voluntary 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.
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 which 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 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 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.
Key Features of Buy-to-let Mortgages
BTLs have specific differences from conventional mortgages. Some of these features include:
- Their fees and interest rates 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 plans are on a voluntary repayment basis. It means that instead of the interest rolling up, this partial payment plan allows you to repay up to a certain percentage of the original amount borrowed each year (dependent on the plan provider) with no penalties.
- The Financial Conduct Authority (FCA) does not govern 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 residential mortgage.
- The advising, planning, lending and governing of consumer BTL mortgages are covered under the same laws as residential mortgages 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 a minimum 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 £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.
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
- Your health and lifestyle conditions – 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.
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 lifetime mortgage? Read this now ‘Types of Lifetime Mortgages‘.
What are you waiting for?
Look up your financial adviser right now and get them to walk you through the application process. You can never have enough investments!
If you need more information 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.