Buy To Let Mortgages: What You Need to Know
A Buy-to let mortgage in Scotland can be a great way to invest in property but whether you are a first time landlord or one who is looking to add to or refinance an existing portfolio, expert mortgage advice is always a critical and important part of the process.
This is a fact and at least partly because the diversion in lending criteria and products available in this sector is arguably greater and more niche than with any other type of mortgage.
Thankfully, however, there are mortgage lenders who will look at most circumstances and suitable property types and I know who they are and how they work.
Not only can I help you secure the most competitive mortgage for your circumstance but I will also guide and advise you to help successfully master the Scottish property buying process from start to finish.
So, why are you here & how can I help?
You might be….
- A first time landlord looking to understand and learn about how to start your property investment journey.
- A landlord with a number of properties already and looking to grow a property portfolio further.
- A homeowner with equity in your own home considering potentially leveraging this equity by investing in rental property.
- Earning very little interest on your hard-earned savings and looking to potentially obtain better returns in property.
- Like many without a private pension, considering alternative ways to potentially build and generate a retirement income.
- An accidental landlord now looking to switch their previous residential mortgage to a buy-to-let product.
- A buy-to-ley investor with mortgages on the variable rate which now may benefit from being re-assessed.
Or maybe, if not any of these, something else that we just haven’t heard of yet….but whatever it is you are looking to do, you have an interest in buy to let and are potentially looking at Scottish property and raising a buy to let mortgage in Scotland…..and you may have some questions just like the ones below:
01 What is a Buy to Let Mortgage in Scotland and how do they work?
A buy-to-let mortgage is a mortgage for purchasing property with the specific aim of letting it out to tenants. Most buy-to-let mortgages in the UK are interest-only, with the landlord paying the monthly interest using rental income. Buy-to-let properties come in all shapes and sizes, from houses to apartments and almost everything in between.
Unless you own a property outright, it is usually against your lender’s rules to rent it out without taking out a BTL mortgage.
02Do I need to currently own or have previously owned a home to get a buy to let mortgage?
Not necessarily, as there are some buy-to-let mortgage lenders who will offer mortgages to first-time buyers under the right circumstances. That said, the majority of mortgage providers do prefer customers who’ve owned a residential property for at least six months. To find a lender who’s willing to consider a first-time buyer buy to let mortgage in Scotland, it’s worth considering using a mortgage broker like me who knows the market well.
03Will bad credit affect my application?
If there’s previous bad credit showing on your credit file, then as with most forms of borrowing this can definitely limit the options available to you for a buy to let mortgage in Scotland.Potential credit issues you may be faced with are a low or impaired credit score, defaults, County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), and Debt Management Plans (DMPs).
I help people with these kind of issues every day but in general the smaller the amounts involved, the less severe and older the issue, and the larger the deposit, the more chance there is of approval.
Worst case, if it’s not feasible to apply for a mortgage right now, I can and will still work with you and advise what things need to be done to improve your chances in the future. for a
I help people with these kind of issues every day but in general the smaller the amounts involved, the less severe and older the issue, and the larger the deposit, the more chance there is of approval.
Worst case, if it’s not feasible to apply for a mortgage right now, I can and will still work with you and advise what things need to be done to improve your chances in the future. for a
04How is a Buy to Let mortgage in Scotland different to a residential mortgage?
Apart from the fact that the owners of the property (or any direct relations/family) are unable to be a permanent resident there, the main difference between a buy-to-let and a residential mortgage is the way affordability is assessed.
With BTL, lenders will generally assess affordability based on rental potential and the ability of the projected rental income to cover the mortgage payments. For a residential mortgage meanwhile, affordability is based on personal income. Some BTL lenders do factor personal income into their affordability calculations and overall assessment of a case, however the deciding factor is usually the level of the potential rental income.
Interest rates and deposit requirements can also be higher for buy-to-let mortgages (you will need at least 20% of the property value but more often a minimum of 25% will be required)
And unlike their residential counterparts, a buy to let mortgage in Scotland will almost always not be regulated by the Financial Conduct Authority (FCA),
With BTL, lenders will generally assess affordability based on rental potential and the ability of the projected rental income to cover the mortgage payments. For a residential mortgage meanwhile, affordability is based on personal income. Some BTL lenders do factor personal income into their affordability calculations and overall assessment of a case, however the deciding factor is usually the level of the potential rental income.
Interest rates and deposit requirements can also be higher for buy-to-let mortgages (you will need at least 20% of the property value but more often a minimum of 25% will be required)
And unlike their residential counterparts, a buy to let mortgage in Scotland will almost always not be regulated by the Financial Conduct Authority (FCA),
05What is the difference between a rental return and rental yield and why are they important?
A rental return is the difference between the rental income your property generates and the amount of interest due on your mortgage each month, expressed as a percentage.
For example, if your mortgage interest payments are £500 per month and your rental income is £550, the rental return on your buy-to-let property would be 110%.
Most lenders require to see a projected rental return of at least 125% before they’re willing to offer a BTL mortgage, and they will assess whether a property meets this requirement by also carrying out a stress test.
Rental yields, meanwhile, are the amount of cash your property generates, calculated as a percentage of its value, and broken down into net and gross values. These are not relevant in respect of mortgage assessment but are something that all buy to let investors should be aware of and consider as one of the measures of how any investment in property may perform.
To calculate your rental yield, simply divide the purchase price of the property by the amount of yearly rent it brings in. For example, if the purchase price is £100,000 and the rent is £800 per month, then the annual rent is £9,600 and your buy-to-let property yield would be 10.4%. Many will tell you that a rental yield of 8% or more is desirable however other factors should also be considered.
For example, if your mortgage interest payments are £500 per month and your rental income is £550, the rental return on your buy-to-let property would be 110%.
Most lenders require to see a projected rental return of at least 125% before they’re willing to offer a BTL mortgage, and they will assess whether a property meets this requirement by also carrying out a stress test.
Rental yields, meanwhile, are the amount of cash your property generates, calculated as a percentage of its value, and broken down into net and gross values. These are not relevant in respect of mortgage assessment but are something that all buy to let investors should be aware of and consider as one of the measures of how any investment in property may perform.
To calculate your rental yield, simply divide the purchase price of the property by the amount of yearly rent it brings in. For example, if the purchase price is £100,000 and the rent is £800 per month, then the annual rent is £9,600 and your buy-to-let property yield would be 10.4%. Many will tell you that a rental yield of 8% or more is desirable however other factors should also be considered.
06Can you get a Buy to Let mortgage in Scotland through a limited company?
The quick answer is yes, you can!
While there are fewer buy to let mortgage products available for limited companies compared with what’s on offer to individuals, the good news is that thanks to growing demand for these products, more lenders are entering into this particular market.
While it isn’t always the right mortgage for a property investor, applying for a BTL limited company mortgage can make a difference to the return on your investment.
Speaking with an expert about the difference between buying a property through a business or with a personal BTL mortgage can help you better understand which option would work for you.
While there are fewer buy to let mortgage products available for limited companies compared with what’s on offer to individuals, the good news is that thanks to growing demand for these products, more lenders are entering into this particular market.
While it isn’t always the right mortgage for a property investor, applying for a BTL limited company mortgage can make a difference to the return on your investment.
Speaking with an expert about the difference between buying a property through a business or with a personal BTL mortgage can help you better understand which option would work for you.
07What level of income will I require for or can I get a Buy To Let Mortgage in Scotland with no or low income?
Many buy-to-let mortgage lenders base affordability on the projected rental income alone, but some do have minimum personal income requirements, too.
The BTL mortgage providers which impose this restriction won’t usually lend to anyone who earns less than £25,000 from other sources, however there are a several buy-to-let mortgage providers who lend to customers with no regular personal income and base agreements entirely on rental income.
That said, even those lenders with no minimum income requirements will generally wish to know that you have either savings or some level of income available which would be able to cover the mortgage payments if any rental void periods ever arose.
The BTL mortgage providers which impose this restriction won’t usually lend to anyone who earns less than £25,000 from other sources, however there are a several buy-to-let mortgage providers who lend to customers with no regular personal income and base agreements entirely on rental income.
That said, even those lenders with no minimum income requirements will generally wish to know that you have either savings or some level of income available which would be able to cover the mortgage payments if any rental void periods ever arose.
08How much deposit do you need for a Buy To Let Mortgage in Scotland?
In order to obtain the most competitive rates and have the greatest choice of lenders, a minimum deposit contribution of 25% is required.
There are some lenders however, who will consider applications based on just a 20% deposit contribution and a very very small number who would potentially be willing to look at applications on which only a 15% deposit contribution was necessary.
As with typically any type of mortgage lending however, the lesser the deposit contribution and the higher the loan to value the greater the risk becomes to the lender and the applicable interest rates will also likely be higher to reflect this.
There are some lenders however, who will consider applications based on just a 20% deposit contribution and a very very small number who would potentially be willing to look at applications on which only a 15% deposit contribution was necessary.
As with typically any type of mortgage lending however, the lesser the deposit contribution and the higher the loan to value the greater the risk becomes to the lender and the applicable interest rates will also likely be higher to reflect this.
09What is the actual process when looking to buy a property in Scotland?
Hopefully the above information has been useful but if you have any other questions or are ready to start your own property journey now, please fill in the enquiry form and we will get in touch!
This article is intended to be a generic overview and each individual situation will need to be considered carefully, with the final decision being down to the lender.
This article is intended to be a generic overview and each individual situation will need to be considered carefully, with the final decision being down to the lender.
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