For landlords, buy-to-let mortgages often cover their biggest financial investment, and can make or break a property deal. In the UK, there are on average 2,000 different BTL mortgage products available from approximately 70 lenders. To help UK, expat and foreign national landlords decide which mortgage is best we have pulled together a quick primer on buy-to-let mortgages in the UK.

What Is A Buy To Let Mortgage?

Like a residential mortgage, a BTL mortgage allows the borrower a first charge loan on a residential property. With buy-to-let properties, however, the landlord rents out his flats or houses for commercial gain.

Therefore, the property’s rental income, rather than a personal salary, is expected to cover the mortgage payments. As a consequence, a buy to let mortgage only works if the property is to be rented out. If a landlord needs to refurbish or convert a property before renting it out, the property usually needs to go on a short-term bridging loan first.

How Do Buy To Let Mortgages Work?

The two main forms of buy-to-let mortgages are:

  1. Interest only products
  2. Capital and interest repayment products

In general, a buy to let mortgage provider will lend to a set percentage of the property purchase price, called Loan To Value. As a long-term product most BTL mortgage terms cover either two or five years. What mostly drives mortgage rates is the country’s economic outlook, the growth of the buy to let market, and rental demand in general.

When choosing a buy to let mortgage, should landlords go for a fixed or variable rate product? A fixed rate product allows the borrower to plan monthly expenditure; a variable rate product holds the advantage of a potentially decreasing monthly payment.

HMO, Holiday Let, Islamic, Green and Portfolio Mortgages

A HMO Mortgage is a conventional buy to let mortgage taken over a security that has multiple tenants. It is referred to as a House of Multiple Occupancy i.e. shared bathing and kitchen facilities. When applying for a HMO mortgage, lenders consider the landlord’s previous experience with HMOs and the type of tenants in particular.

A Holiday Let mortgage is a conventional buy to let mortgage on a security that has long-term tenancy restrictions. Because holiday lets carry a greater risk of rental voids and higher marketing costs lenders are generally more comfortable lending to landlords with experience in serviced accommodation/holiday let.

Not all landlords can reconcile the concept of paying interest on a loan with their individual faith. A sharia compliant buy to let mortgage allows a borrower to buy a property jointly with the bank in exchange for monthly rental payments for the part owned by the bank. On top, a lender adhering to Islamic finance principles will not use Early Repayment Charges on buy to let mortgages.

Another type of buy to let mortgage that is becoming increasingly popular are green mortgages. In order to reward landlords for investing in energy efficient properties a few specialist lenders offer reduced rates and special terms on specific green buy to let mortgages.

If you own and rent out more than four properties consider switching to a portfolio mortgage. Essentially, this type of mortgage bundles single mortgages under one umbrella, with one lender, one average mortgage rate and one single monthly payment. To make a portfolio mortgage worthwhile financially, the minimum recommended value of a portfolio is £500,000.

Expat and Foreign National Mortgages

How can you finance a UK property investment when you are living abroad, or have lived in the UK for less than two to five years? While most high street banks that offer buy to let mortgages only do so for UK residents, some specialist lenders offer expat buy to let mortgages, or B2L mortgages for foreign nationals, offshore and onshore. In general, your eligibility as a borrower is higher if you already own property in the UK and are resident in a country with a low-risk jurisdiction. That said, our panel of lenders includes those willing to consider clients outside of the standard borrower profile.