Buy-to-Let Mortgages (BTL)

There are two types of BTL mortgage available to purchase – a Business Buy-to-Let (BBTL) if you are a property investor and a Consumer Buy-to-Let (CBTL) if you are letting by default.
Consumer Buy-to-Let (CBTL)

CBTL mortgages are any buy-to-let contracts that are not entered into by an individual ‘wholly or predominantly’ for the purpose of a business. They are only suitable for people who have become a landlord by default as opposed to making an active business decision, e.g. where a property has been inherited or has been previously lived in and the individual is unable to sell it, so resorting to a Buy-To-Let arrangement (BTL).

Business Buy-to-Let (BBTL)

BBTL mortgages are for landlords who buy property specifically to rent out. They will not be lived in by the owner and are purchased either to dabble in property to make an income, or be part of a property portfolio.

Buy-to-Let mortgages are only suitable for people who want to invest in houses and flats. Investing in property is risky, so you shouldn’t take out a BTL mortgage if you can’t afford to take that risk. They are in many ways just like residential mortgages, but with some key differences:

  • Interest rates on Buy-to-Let mortgages tend to be higher;
  • The minimum deposit for a Buy-to-Let mortgage is usually a quarter (25%) of the property’s value (some lenders offer deals with a 20% deposit, others want a 40% deposit);
  • The fees tend to be much higher;
  • The level of borrowing is typically based on the level of rental income; and
  • A 3% stamp duty surcharge applies, which applies to the entire purchase price of the property.

Most BTL mortgages are interest-only, which means you don’t pay anything off the lump sum borrowed each month but, of course, at the end of the mortgage term you need to repay the capital owing in full. BTL mortgages are also available on a repayment basis.

Unlike obtaining a mortgage on a property you wish to live in, most BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions such as if you wish to let the property to a close family member, which would then make it a CBTL and are assessed according to the same strict affordability rules as a residential mortgage.

For those not taking a BTL mortgage out on an interest-only basis, the same different types of interest rates apply as to residential mortgages. Equally, the same risk considerations must be made.

If a BTL property is owned personally and sold for profit, Capital Gains Tax (CGT) will be due if your gain exceeds the annual CGT threshold. Also, rental income (less certain allowable expenses) is liable to Income Tax. A basic rate tax credit of 20% on your mortgage interest payments is given as a deduction from your income tax bill.

If you are considering using a limited company to purchase a BTL property, you should seek professional advice from an accountant.

For more information, click on the most suitable link:

Residential Mortgages
Mortgage Protection
Buildings & Contents Insurance

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate that it will be £595.

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.