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Buy To Let Mortgages (BTL)


Buy-to-let is a purchase of property with the purpose of letting it out. It is in reality a business in itself and is treated as such by the tax authorities. BTL can provide twofold benefits to the investor. Firstly, it provides income on a regular basis in the form of monthly rent and secondly it offers the opportunity for long term capital gain upon eventual sale of the property.

There are 3 main differences in buy to let mortgages as opposed to residential:

  • Rent assessment – the lender usually decides whether to lend on a BTL property based upon assessment of the rental potential it has. The rental coverage varies between 100% and 125% of the monthly interest only mortgage payment. Very often the personal income is ignored.

  • Arrangement fees - BTL mortgages often have higher arrangement fees – up to 2.5% of the loan amount.

  • Bigger Deposit - typically a minimum of 15% to 25%is required as a deposit.

Although relatively safe, the running of a BTL business is not an easy task. It very often is time consuming, has hidden costs and there is no guarantee the property prices will continue to rise in the future. When making a decision to buy an investment property you should take into consideration the running costs as well as the cost of the mortgage. These costs include:

  • Maintenance costs;

  • Letting agent’s fees;

  • Tenants cover-insurance against damage done by tenants and covering legal costs for evicting tenants;

  • Service charge and ground rent (for leasehold properties only);

  • Furnishings;

  • Decorating costs.

Although these costs are tax deductible they can add up to a sufficient amount and turn the investment from profitable into a loss. To take into account these costs it is advisable to use a rental ratio of 130% to 140% of the monthly interest only payment.