What is a Buy-to-Let Mortgage?

Types of Buy-To-Let Mortgages:

No one product fits all circumstances. That’s why we have a range of buy-to-let mortgages available. We can tailor our buy-to-let mortgage to your situation, however difficult or complex it may be. We have specific loans available for different scenarios, from complex setups, to purchasing through a limited company.

Buy-to-Let Mortgages For Bad Credit

A bad credit buy-to-let mortgage is for those with missed payments and other issues. If you have bad credit, or a poor credit rating, you did not cover your bills on time in the past. This may indicate that you may struggle to make timely payments in the future.

In the UK, the three main credit rating agencies are Equifax, Experian, and TransUnion. These agencies assign borrowers a score. And while there is variation between them, generally, the lower your score, the poorer your creditworthiness.

If you have a low score, lenders may be unwilling to lend to you. Alternatively, they might only offer you their most restrictive products. Bad credit BTL mortgages may be available for these kinds of borrowers. While we assess criteria on individual merit, those with poor credit ratings may face higher costs, reflecting the risk involved.

Foreign National & Expat Buy-to-Let Mortgages

A foreign national & expat buy-to-let mortgage is for property investors investing from overseas. Our mortgages are available to property investors from any country, except sanctioned ones. Expats, foreign nationals, and/or offshore companies can use our BTL mortgages to invest in English or Welsh property.

Our BTL mortgages are just as available to foreign national landlords as they are domestic buyers. However, where investors have a limited footprint in the UK, we require enhanced due diligence. We will assess your history in the UK, and abroad where needed.

Specialist BTL mortgages for foreign nationals support investors gaining easier access to the UK market. With high street banks, there may be additional red-tape or barriers to entry. But, we have no issues working with overseas interests and can issue funding quickly where everything lines up.

First-Time Buyer BTL Mortgage

First-time buyer BTL mortgages for buyers making their very first investment in the property market. This includes first time landlords, along with first time commercial landlords or owner-occupiers. These mortgages factor in the potential limitations that first-time buyers present.

For instance, our first-time BTL mortgages takes into account that the borrower has no experience in the property market. Or that they may not be familiar with the investment process. Our teams will work with first-time buyers to support them throughout the application, and guide them through the process.

You can utilise our first-time buyer mortgage for any property type that falls under our remit. Though, first-time buyers are likely to start out with the more streamlined investments like single residential flats or new builds.

Self-Employed Buy-To-Let Mortgages

A self-employed buy-to-let mortgage is for those who work for themselves. You are self-employed if you run a business for yourself and are responsible for its success or failure. Being self-employed is different to operating a limited company, which is a separate legal entity from its owners.

If you’re a self-employed worker, your income may be sporadic, perhaps even seasonal. Our self-employed BTL mortgages can take these kinds of elements into account. You need a minimum income of £30k per year from your self-employed work, other employment income, or private pension.

Across all our BTL mortgages, the loans have 4 different tiers. Tiers 1 and 2 are for simple and straightforward cases – investments in standard buy-to-let properties via simple setups. Tiers 3 and 4 are for the more complex deals – such as those involving large structures and foreign nationals. The more complicated or risky your situation, the higher the tier you’ll fall into.

What is the LTV for a BTL Mortgage & how much deposit do I need?

Across all our BTL mortgages, we have a maximum loan-to-value (LTV) ratio of 75%. Our tier 4 mortgages, reserved for the most complex, applications, require an LTV of 70%. This means you’ll need a minimum deposit of 25% of your property’s value.

If you’re investing in a flat above a commercial property, the max LTV available will range between 60% and 70%. The type of commercial premises will affect the LTV. Your deposit will depend on you investing on-top of, or immediately adjacent to a restaurant, takeaway business, pub, or launderette.

Remember that your investment will have a dedicated underwriter. All our underwriters have the flexibility to boost loan sizes, subject to our max LTVs.

What is the difference between Regulated & Unregulated Buy-To-Let Mortgages?

In most cases, a BTL mortgage will be unregulated. Regulated BTL mortgages are overseen by the Financial Conduct Authority (FCA). They will likely have stricter processes in place when compared to non-regulated BTL loans.

Generally, landlords use regulated BTL mortgages when they plan to rent their asset to an immediate family member. This includes siblings, children, parents, or grandparents. There are also consumer BTL mortgages which are regulated by the Financial Conduct Authority (FCA). These tend to be for accidental landlords – those who became landlords due to circumstances outside of their control.

The vast majority of BTL mortgages are not regulated, as they are considered a business transaction. As such, they won’t qualify for the FCA’s consumer regulations. But, the BTL mortgage process can move relatively quickly as a result of being unregulated, while also being very flexible.

Interest-Only vs. Repayments

Your monthly repayments of your interest-only BTL mortgage will only pay the interest charges on the loan. You will not pay back the original capital borrowed at that point. This means you will need to cover the BTL mortgage in its entirety by the end of the term.

This will be your exit strategy and often, this involves refinancing onto a long-term form of finance, or selling an asset or property to cover the loan.

Monthly repayments for repayment BTL mortgages will be split into two elements. The first covers the interest owed on the original loan, while the other half goes towards reducing the mortgage amount. By the end of the term, repayment mortgage borrowers will own the property outright.

At MFS, we only offer interest only BTL mortgages, given their short-term nature. The repayments will need to covered via a direct debit from a UK based account.

How to apply for a Buy-to-Let mortgage & how long does it take?

To apply for one of our BTL mortgages, you’ll need to send through an initial enquiry. You can do this over the phone, online, or via email. One of our underwriters will be in touch within 4 hours to gather some initial details on your background and investment.

You can find our contact details directly on our website, and both borrowers and brokers can contact us alike. We have teams for both, and you will have the same dedicated underwriter throughout your time with us.

What’s more, we have business development managers (BDM) spread across England and Wales. They will be happy to meet up with you and discuss your details at length. You can also sign up to our newsletter to keep up with our products, latest case studies, and other developments.

Beyond the Mortgage application…

You will then need to get on with the job of being a landlord. This means finding tenants for your BTL property. Ultimately, you will have freedom over how much rent you charge. But you will need to consider the average rents for your area, what your tenants can afford, and other economic factors.

Ideally, your rental income covers your mortgage repayments and other costs, but also provides you with a decent yield. A rental yield is the potential return on property investment through rent. A net rental yield or “true yield”, will show what you’ll get after you factor in the costs.

Typically, these costs will include the mortgage, insurances, upkeep and more. Say you invest in a property with a value of £300,000. The calculation for net rental yield is as follows: £30,000 (yearly income from rent), – £10,000 (annual costs), = £20,000.

This £20,000 is your net rental income. You’ll then need to take the net rental income figure, divide it by the property value, and times the result by 100 to get the net rental yield. So, for this example, the net rental yield is: £20,000 / £300,000 x 100 = 6.6%.

Buy-to-Let mortgage tax relief & stamp duty

Prior to April 2020, landlords could benefit from BTL mortgage interest tax relief. This meant they could claim tax relief on their mortgage interest payments at their marginal rate of tax. As such, claims of up to 45% were possible.

While this relief is no longer available, there are still many tax perks BTL investors can utilise. Currently, tax credits are available to landlords, and first-time buyers can utilise stamp duty relief. Landlords may also be able offset certain expenses against their tax bill, such as utility costs and letting agent fees.

Investing through a limited company may also present landlords with certain tax perks. The rules around tax can be complicated however. We recommend to seek guidance from qualified accountants and financial planners.

Case Study 1

We pride ourselves on our ability to provide bridging like speed to the BTL mortgage market. This is the case for domestic buyers and foreign national landlords alike. A good example of this occurred in this deal where we supported a returning offshore borrower facing up against tight deadlines.

The client wanted to purchase a new build property, with the intention of letting it out to tenants. But, they were under pressure from the developers involved to wrap everything up quickly. As such, the client needed flexible and rapid finance.

To move quickly, we assessed the property’s long-term potential. We reviewed everything from its location, through to the type of tenants it could attract.

While there were initial issues concerning the property’s rental yield, our underwriter considered the larger picture, looking at the wider market’s health. We were able to deliver funding that met the developer’s deadlines.

Case Study 3

Even where an investors background is less-than-ideal, we can offer support. A borrower, with an adverse credit history turned to us for support.

We explored the client’s background and discovered their credit record had been clean for some time. We also saw that they had other investment properties in their portfolio. This reassured us their finances sat on solid foundations, and we were happy to lend.