All your UK buy-to-let mortgage questions are answered

With buy-to-let properties come buy-to-let mortgages, and with buy-to-let mortgages come a lot of buy-to-let mortgage questions. We sat down with our Senior Mortgage Consultant, Andrew Mussai, to provide you with the answers to some of the most asked buy-to-let mortgage questions. If you want to know the ins and outs of borrowing for buy-to-let, this is the blog post that covers it.

What are the benefits of borrowing through a limited company? 

If you buy in your personal name you are limited on what you can offset as an expense. Through a limited company, however, you are permitted to offset multiple different property expenses from your revenue. This makes it more advantageous for tax purposes as you are taxed on your profit after expenses have been deducted from your revenue. In regards to mortgages, you can offset your entire mortgage interest. In terms of tax, this means that if your rent is £1,000 and your mortgage payment is £500 - you’ll only pay tax on your £500 profit. When buying in your personal name, you also pay tax on the profit after deducting certain allowable expenses, these include mortgage interest rather than the entire mortgage payment. 

It’s good to note that there are other taxes to account for such as taking money from the account for dividends or if you’re taking a salary from the company.

Is it harder and more expensive to get a mortgage through a limited company?
You generally find you pay around 0.5% more on your interest rate than you would in a personal name. However, you have the added benefit of offsetting more of the property running costs. As a result, although the interest rate is slightly higher, it can have better long-term value. This should, however, be examined on a case-by-case basis. 

For standard taxpayers, the difficulty of getting a mortgage remains fairly similar. If you are a higher-rate taxpayer, it is arguably easier if you use a limited company. This is because the stress test - a method used by lenders to decide the borrowing amount - with a company tends to be more generous, increasing the loan amount and allowing you to purchase more expensive properties. 

Is it better to wait for interest rates to decline before borrowing? 
Whether you decide to wait for rates to go down or invest now is dependent on your individual investment journey and goals. A big reason that investors are going ahead with purchasing their properties right now is the discount they are able to achieve on their properties. If you take a look back at the past few years, properties were going for the asking price or even above the asking price. However, at a time of high interest rates and reduced demand, investors are able to negotiate prices down by around 5% - 10%. As a result, even with the high rates, the discount allows you to make that money back and spend longer in the market so you benefit from the capital growth of your property. 

Do UK buy-to-let mortgages have set-up costs?
There is a UK broker or arrangement fee, which at GetGround is £349 for UK residents and £799 for non-UK clients. The other fees to factor in are product fees, valuation fees, legal costs, and stamp duty costs. Product fees are charged for having a mortgage with a lender, this can be anywhere between 1% and 7% but the average sits around 2% and 4%. In recent times, we’ve seen that the product fees have gone up significantly with some lenders - this is mainly due to the regulations around the stress tests that lenders have to impose when taking on new mortgages. Your valuation fees tend to differ based on the property but a basic valuation costs between £200 - £500. When considering your legal costs, it’s often the case that you need two sets of representation, one for the lender and one for yourself. 

Do I need a 25% deposit for buy-to-let mortgages?
Most commonly, you will require a 25% or larger deposit for a buy-to-let property. There are a few lenders who accept 20% deposits, these tend to come with higher interest rates. Higher LTV mortgage products tend to have better rates, although your investment strategy will largely impact the deposit you decide to put down when borrowing. 

Is there a maximum number of buy-to-let mortgages you can have?
When it comes to buy-to-let mortgages, there is no set limit for the number you can have. Once you have 4 or more mortgages, you are classed as a portfolio landlord - this means lenders will do additional stress tests on your portfolio as well as for the property you are attempting to borrow to purchase. After you reach 10 properties you may find that the number of lenders you can use drops, this is because some of them have limits on the number of buy-to-lets they take on for one particular client. There are however still plenty of lenders who support portfolio landlords.

What are the age restrictions on getting a mortgage? 
This is typically dependent on lenders. With some of our lenders, there is no age limit. Others, however, have a maximum age of around 85 years old.

What is the time it takes to get a buy-to-let mortgage? 
This is again dependent on the lender, but the average timeframe we see is 2 to 4 weeks to get an offer. With a good broker, they will make sure that they have all the details they need to ensure the application goes as smoothly as possible and reaches an offer within this timeframe. Completing on a mortgage then largely depends on how quickly your solicitors act.

How long does a decision in principle last? 
A decision in principle (DIP) can last anywhere between 5 to 90 days depending on the lender. The two main reasons it would be suggested to obtain a DIP are if the estate agent requires it to put your offer forward or if you have credit issues that mean you need to do a credit check. 

Otherwise, it might be worth considering if you need a decision in principle. When it comes to buy-to-let mortgages, lenders check whether your rent can cover your payments up to a certain amount, they then decide whether to lend. These are calculations that can be easily done and if you choose to get a mortgage through GetGround we can do them for you.

How long can I get a fixed-rate mortgage for a limited company?
The general rule of thumb is two, three, or five-year deals. There are a few options in the market for seven or ten-year deals. With these products, you typically end up paying more due to the lack of competition in the space. 

Can you get a buy-to-let mortgage for a limited company if some of the directors live abroad? 
Different areas are more accepted by lenders than others; areas such as the UAE, Hong Kong, and Singapore are widely undertaken by lenders. However, if you investing and even one of the investors lives overseas, you will be subject to overseas rates and this will make your mortgage more expensive.

Can a retired person without a pension get a mortgage?
Most lenders look for a minimum income of £25,000, and some even require £50,000. Although there are a few lenders who may loan without income considering the rent of the property is favorable and the investor has a good credit history, it may be difficult to find one. 

Are there any restrictions for non-UK residents obtaining a mortgage through a limited company? 
This would depend on the jurisdiction of the borrower; there are risk profiles associated with different countries. For example, investors from areas that have recently been involved in conflicts, or from areas with less developed banking systems may struggle to receive a mortgage. The currency of the jurisdiction is also considered - if you’re from a country whose currency fluctuates quite dramatically, you may also find it more difficult.

If your country is on the accepted list, however, you shouldn’t face many more restrictions than a UK resident borrower. You will have a reduced list of lenders that you can select from as not all lenders tailor towards international borrowers. 

How does my income tax bracket impact the mortgage stress test? 
Lenders will assess the rent against the mortgage payment, and for limited companies, the rental will usually need to cover the mortgage payment by 125%. This is regardless of whether the director is a lower or higher-rate taxpayer. 

The difference comes in when the mortgage is obtained through a personal name. Lower-rate taxpayers will likely need the 125% coverage too, whereas higher-rate taxpayers will need closer to 145% coverage.  

Are certain locations better for short or long-term rentals? 
Location may factor into the type of rental you are looking for, but not always. For example, we see a large number of investors choosing Birmingham and Manchester - they are great for long-term rentals due to the large number of young working professionals looking to live there, but they also work great as short-term rentals as people often go there for long weekend visits and short holidays. So, there can be some locations tailored to both types of rentals. 

There are two things you can look at to decide whether a short- or long-term rental would be better in the area you’re looking at. You can go online and have a look at the rent of properties in that area to determine whether they are attractive in relation to your investment. If you see there are many properties in that area and they have quite low rental prices you may struggle renting out long term there. The second thing you can do is go on Airbnb and take a look at the price of booking a property in the area you’re looking at. This way you can see both the demand your property might have and the average return you would receive.   

When applying for a buy-to-let mortgage it is important to inform lenders about how you intend to rent out the property as some lenders won’t finance short-term rental cases. 

Does GetGround charge a fee for their mortgage services?
We charge a fee for the arrangement of mortgages for our clients. For UK clients our fee is £349 and for overseas clients, the fee is £799. These fees are typically split into two payments - the initial payment is taken after a binding mortgage offer has been received from the lender and the second payment is after completion. So if for any reason a mortgage offer isn’t received, your application is declined, or you’re not happy with your valuation, there would be no fees to pay. 

How does GetGround help me get a mortgage?
As a certified mortgage broker, GG Mortgage is a seamless way to finance your property investment. We have access to the whole of the market for buy-to-let mortgages. So, you can be eligible for competitive rates no matter where you live whilst also being able to apply easily and with dedicated support. With GetGround you get a mortgage, a limited company and a property all in one place.

If you have any more questions, join our next Q&A session or if you’re ready to move forward with financing your UK buy-to-let, get started with GG Mortgage.

Disclaimer: GetGround's mortgage services are provided through GetGround Commercial Finance Limited. GetGround Commercial Finance Limited is an Appointed Representative of The Fiducia Network Ltd, which is authorised and regulated by the Financial Conduct Authority under FRN 917537.GetGround Commercial Finance Limited is a credit broker and not a lender. We source finance from the whole of the lending market, who may pay us commissions. These commissions may vary depending on the lender, product, or other permissible factors. Member of the National Association of Commercial Finance Brokers’ (NACFB) and adhere to their Code of Practice. Your mortgage is secured on your investment, which you could lose if you do not keep up your mortgage repayments. Capital at risk. Some mortgage products available via our platform are execution-only mortgages, these are available through Terranova.Network Limited. This means you select a mortgage that is right for you not receiving any recommendation from us.GetGround does not provide legal advice, tax advice, or investment advice, and always recommend you seek independent advice when needed.