A Complete Guide to Buy-to-Let Lifetime Mortgages
Property is a fantastic investment opportunity that you shouldn’t ignore!
However, with the wrong advice, what should be an investors dream, can quickly become your ultimate nightmare.
Don’t worry! We’re here to be your guide!
We’ll help you discover:
- All you need to know about BTL equity release products.
- The costs involved with BTL.
- All the terms and conditions you need to be aware of.
As experts in the field of equity release, you’ve come to the right place. We’ve spent countless hours reviewing 100’s of plans, and we’ve got all the secrets to share. Discover these right now!
What’s a Buy-to-Let Mortgage?
It’s common for landlords to remortgage their investments and release equity to purchase an additional investment property. Additionally, this money could be used for maintenance and refurbishment cost. It’s quite a smart strategy because property essentially pays for itself.
As per various equity release1 services providers, the proprietor’s buy-to-let property is not occupied and must be let out under an Assured Shorthold Tenancy Agreement.
The options provided in this plan, include:
- Regular income
- Voluntary regular repayment plan
All these on a buy-to-let basis.
Therefore, if you want to start renting out a property or are an established landlord looking to extend your BTL property investments, be sure to get hold of your financial adviser to start making plans. This can help benefit your retirement and tax planning.
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 repay the new loan.
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 they’ll approve your secured new loan. That’s 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, doesn’t mean that your provider won’t consider your salary. With some lenders, if it’s 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.
5 Key Features of Buy-to-let Mortgages
BTLs have specific differences from conventional mortgages. Some of these features include:
- Their fees and fixed interest rates3 tend to be higher.
- Their minimum deposit’s usually 25% of the property’s value (although it can vary, depending on the lender, between 20-40%).
- Most BTL products run 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 regulate 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 when you want to keep your existing mortgage but don’t want further advancement from the same lender. Rates for secured loans can be slightly higher than mortgages, so you must bear this in mind. They’re authorised and regulated by the Financial Conduct Authority (FCA).
6 Buy-to-Let Mortgage Criteria
Are you considering the buy-to-let route? Check these criteria out to see if it could be right for you:
- You have a desire to invest in houses or apartments and you’ve done all the nessecary research.
- You have the means to cover the expenses of investing in property, including maintenace and unforseen expenses.
- You already own property, whether outright or with an outstanding mortgage.
- Your estate’s has a minimum cash value of £70,000 and no more than £6 million.
- Your property is located 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, but under the age of 90.
Take note: Any other qualification criteria will depend on the plan provider you choose.
What’s the Cost of a Buy-to-Let Mortgage?
Before you go ahead and take out a BTL, you must know the costs involved so that you can effectively budget. 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 – The current value of your property.
According to most lenders’ quotation charts, these costs can add 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
- There’s a £70,000 cash minimum value of property
- Lifestyle and health – if you have any qualifying medical conditions, you’ll have the right to borrow more capital.
To give an estimate, you can get a sum between 20% and 50% of the equity in your residence.
But when 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.
Can I Buy-to-Let With a Bad Credit Score
The answer is that it depends. Some lenders will have an issue with a bad credit rating. However, with the right specialist advice and selected a fantastic property, you could qualify for a buy-to-let lifetime mortgage, despite your history of bad credit.
Real estate is the most assured investment, and thus, buy-to-let plans were designed to help you enjoy financial freedom in your retirement and enjoy the benefits that come with owning a buy-to-let property.
Looking for a different type of mortgage? Discover the 2 main types of equity release.
What are you waiting for?