Qualifications for getting a buy-to-let mortgage

Interested in profiting from property? Take our ‘Do I Qualify?’ quiz to find out if you have the qualifications to apply for a buy-to-let mortgage.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the FCA, and we are permitted in this capacity to act as a credit-broker, not a lender, for consumer credit products (our FRN is 422737). The Motley Fool Ltd does not have permissions for, and does not advise on, investment products and services, but may provide information on investment products and services.

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »