All things Buy to Let
Buy to let mortgages have been a knowledge area of ours for some time. We draw on our own personal experience as landlords, as well as a background in Estate Agency and Property Management. We work with Professional & Portfolio Landlords, First Time Landlords, House of Multiple Occupation landlords, Holiday Let landlords & Commercial Landlords. No two applications and set ups are the same, and we believe our knowledge of the overall market, particularly in Houses of Multiple Occupation, gives us the edge to support you. Below are some buy to let mortgage types we can help with.
The Financial Conduct Authority does not regulate some forms of Buy to Lets. Your property may be repossessed if you do not keep up repayments on your mortgage.
Standard Buy to Let with single Assured Shorthold Tenancy
Letting to a family or a single or professional couple on one tenancy agreement is classed as a standard Buy to Let. If there are 2 people living in the property who are not related i.e colleagues, this is also a standard Buy to Let. Mortgage lenders use a background calculation known as a "stress test" to understand whether the mortgage payment could be covered by the anticipated rental income + profit, when stressed at a higher interest rate. Each lender's stress test is different, and we work with the Buy to Let lender's affordability calculators to find the most suitable option.
House of Multiple Occupation (HMO) Assured Shorthold Tenancy
HMO's become a little more interesting; the majority of lenders define a HMO to be a property that is let to 3 or more unrelated tenants who share facilities such as the kitchen and bathroom(s). A handful of lenders define it as 5+ unrelated tenants. Whether a mandatory HMO license is required will depend on your local council and their rules, so check if you need one prior to completion. Specialist Buy to Let lenders will consider HMO mortgages; the interest rates tend to be higher due to HMO's being viewed as more of a risk albeit they are usually higher yielding than letting to a family or couple. There continues to be less competition in the market for HMO mortgages, when compared with standard buy to let lenders; another reason for the higher interest rates.
Limited Company Buy to Let
A Limited Company Buy to Let is a vehicle used by a landlord to purchase a rental property. The property can be let to a family, professionals or on an HMO or more specialist basis (within accepted criteria). The property is owned within a company which has been set up at Companies House, usually as a Special Purpose Vehicle (SPV). An SPV is a company that is set up solely for the purpose of purchasing and letting rental property. Rent comes in and mortgage and direct debits for the property go out. No other trading is carried out within the SPV. It is possible to obtain a mortgage for a trading limited company, although these are less common. A landlord may choose to purchase a Buy to Let property or move their portfolios to an SPV set up.
Corporate Let tenancy
Corporate tenancies are generally used by a landlord to let their property to a company who then source the tenants. The corporate company pay the rent each month, and they manage the property. They tend to offer landlords a guaranteed rent per month, so if there are any tenants falling behind with their rent, the corporate company continues to pay. This type of tenancy provides an option for landlords are looking for a passive income that does not require much of their attention. Corporate companies can vary from well known brands and blue chip companies, to smaller property management or local businesses. Each lender has a different set of criteria for these types of lets and usually have a maximum tenancy length of between 2-3 years.
Staycations are now more popular than ever, and with the likes of AirBnB and Vrbo becoming the norm when searching for somewhere to holiday. It isn't surprising to hear that properties near the coast and close to cities are quickly becoming AirBnB hot spots. Mortgage lenders are catching up with trends and although there are still not a huge amount of lenders who provide holiday let mortgages, lenders are understanding the continuing demand, and the possibility of earning an income even if the property is not tenanted all year round. Holiday let lenders take 2 approaches when assessing holiday lets; they either look at how much the property would let for as a standard Buy to Let and use this figure for affordability. Some lenders will look at anticipated holiday let rental income for low, mid and high season, and use an average of the 3. If you are intending to let your property as a Holiday Let, it is important that you secure the correct mortgage that allows short term lets, to ensure that you are not breaching your mortgage conditions.
DSS and Regulated Buy to Let
There are many tenants in need of homes as DSS or via government schemes. There are lenders who will consider DSS tenants; some lenders like to see the rent being paid directly from the council. It is anticipated that the rental income from DSS tenants is unlikely to be at the same level as a standard tenancy, so the affordability calculation is likely to reflect this, impacting the maximum mortgage available to be borrowed. Similarly, regulated Buy to Lets such as family lets are a growing area. These are regulated by the FCA. This only applies if the family member is living in more than 40% of the property. Regulated lets to family members usually involve a more in depth affordability analysis. The reason for this is because mortgage lenders believe it's possible that you may rent the property to your family member for less than market rent and you may be more forgiving if they fall behind on their rent. The lender needs certainly that you could cover the mortgage payment yourself if necessary.