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Qualifications for getting a buy-to-let mortgage

Qualifications for getting a buy-to-let mortgage

By: Candy Wallace | April 27, 2020

Do you have a little capital to invest? Maybe you’re looking to boost your retirement income, or give your kids some support through university? Investing in property to rent out is still worth considering, in spite of major changes to the tax regime for landlords specifically designed to put you off the idea. Using your capital as a deposit on the right property could pay off at the moment – as long as you have the qualifications for getting a buy-to-let mortgage.

Buy-to-let – not dead yet

Buy-to-let mortgages are harder to get than they used to be, and it’s tougher for landlords to make a profit now.

But with interest rates so low, investing in buy-to-let allows you to take advantage of lower mortgage costs with the chance of a better return than savings accounts are offering. Plus there’s always the hope of building up capital in the property over the long term. Having a decent deposit will help you get the mortgage you need.

Do you have the qualifications for getting a buy-to-let mortgage?

Different lenders have different criteria. But there are some basic requirements you’ll need to fulfill for most mortgage providers, and they’re more demanding than they used to be.

Take our “Do I Qualify’ quiz below to find out if you’re eligible for a buy-to-let mortgage.

  1. Do you understand the risks involved in investing in buy-to-let – and can you afford to take them? 
  2. Do you own your own home (either outright or with a mortgage)?
  3. Do you have a minimum annual salary of £25,000?
  4. Are you investing in a residential property – a house, bungalow or flat? 
  5. Do you have a good credit record?
  6. Will you be 75 years old or less when the mortgage term finishes?
  7. Can you afford at least a 25% deposit (some lenders demand up to 40%)?

If you answered YES to questions 2 to 7, it means YES you do have the qualifications for getting a buy-to-let mortgage.

If you can’t honestly answer YES to question number one, you might be offered a mortgage – but you could come a cropper…

Before you dive in

It’s important to be aware of the risks before you take the plunge. The biggest risk is that your costs outstrip your income. Here’s how:

Generous tax breaks have been taken away

As of April this year, landlords will be taxed on revenue rather than profits (goodbye tax relief on your mortgage interest). Although you will get a 20% tax discount on mortgage finance costs.

Also gone is the 10% discount on tax bills for landlords of furnished buy-to-let properties to cover ‘wear and tear’.

Plus there’s now a stamp duty surcharge of 3% on buy-to-let properties over £40,000. Buy an investment property for £255,000 and you’ll now get a stamp duty bill of £10,400. Ouch.

Empty periods

 As sure as eggs are eggs, you will have empty periods where there’s no rent coming in. You need to have enough cash in the bank to tide you over until you have another tenant.

Hefty repair costs

 A boiler that needs replacing will take a big chunk out of your savings and there will be ongoing maintenance costs. You’ll need the funds ready and waiting.

Nightmare tenants

 You could have trouble collecting the rent, or find yourself with a tenant who does a lot of damage or refuses to leave at the end of their term. Take out good landlord’s insurance with legal costs included.

Legal safety requirements

 You must have a gas safety check done every year by a Gas Safe-registered engineer and portable appliance testing (PAT) on electrical appliances – more costs to factor in.

Where do you go from here?

So you have the qualifications for getting a buy-to-let mortgage and know the risks. What’s next?

1. Do your research

Look for locations with relatively low property prices and strong rental demand, including university towns. Decide whether you want to rent to professionals, families or students. Aim for at least a 7% return on your investment. 

2. Search for the best buy-to-let mortgage deals

Don’t forget to check you meet a lender’s specific requirements.

3. Improve your personal finances

To build up that financial cushion, make sure your investment profit isn’t draining away elsewhere. Check that the current mortgage on your home is still the best option for you; and finally, cut your credit costs. Here are our top picks for credit card balance transfers.