If You Are Buying A Buy-To-Let Property You Need To Watch This | Mortgage

Podcast: Let’s Talk Money and Mortgages

Host: Gemma

Guest: Ifthi – Trained Accountant, Mortgage Advisor, and Founding Director at WIS

Topic: Purchasing Buy-to-Let Properties and Getting the Best Mortgage Deals

Q1: How is a buy-to-let mortgage calculated?

Answer:

Buy-to-let mortgages differ from regular residential mortgages.

Key points:

• Residential mortgage: Affordability mainly based on your income.
• Buy-to-let mortgage: Banks focus on whether the rent covers the mortgage, plus a buffer.
• Banks perform stress tests considering:
• Interest rate increases
• Potential periods without tenants
• Tax bracket (basic taxpayers generally have an easier time than higher-rate taxpayers)
• Valuation vs. expected rent (if the property is valued lower than expected rent, you may need a larger deposit)
• Deposit: Typically 25%, but passing the stress test is crucial.
• Bank differences: Each lender has its own stress test and can be more or less lenient.
• Tip: Always check expected rental income before purchasing.

Q2: Are commercial buildings or nearby commercial areas a problem?

Answer:

Yes. Banks can be cautious due to fire risks or changes in property use.

Examples of issues:

• Apartments above supermarkets, bakeries, or restaurants
• Properties near industrial areas or garages
• Off-license stores or cash-and-carry establishments

Tip: Always inform your mortgage advisor about nearby commercial properties.

Q3: Why does lease length matter?

Answer:

Banks worry about marketing repossessed properties.

Key points:

• Longer leases = better mortgage chances
• 85 years is often the minimum cut-off
• Short leases can require costly lease extensions (often thousands of pounds)
• Remortgaging may be needed as lease years decrease
• Example: An 800,000-pound apartment had only 8–10 years left on the lease, and the extension cost 1.5 million pounds.

Q4: What issues exist with freehold flats?

Answer:

Freehold houses are fine, but freehold flats in England can be tricky.

Banks are concerned about responsibility for neighboring properties (e.g., leaks).

Leasehold properties usually have management companies and insurance, making them easier for lenders.

Some lenders may require forming a management company to approve the mortgage.

Q5: Does property size matter?

Answer:

Yes. Properties under 30 square meters are difficult for lenders.

Studios and smaller apartments may be problematic.

Options differ if buying personally versus through a special purpose vehicle (SPV) or limited company.

Tip: Check options with your mortgage advisor before making offers.

Q6: Are sitting tenants a problem?

Answer:

Banks prefer vacant possession.

Sitting tenants may indicate that the seller cannot remove them, which concerns lenders.

Not all banks will refuse, but specialist advice is needed.

Q7: What about deck access and building height?

Answer:

• Deck access / timber balconies: Banks may reject shared or wooden balconies.
• High-rise buildings: Banks may limit mortgages above 6 floors.
• Lifts: Usually required for buildings above 3–4 floors.

Q8: Ground rent and service charges

Answer:

Banks factor financial commitments into affordability.

Sudden increases in ground rent or service charges can affect mortgage approval.

Check maintenance companies and service standards.

Q9: EPC ratings

Answer:

From 2025, properties will need a minimum EPC rating of C.

Low ratings may require expensive upgrades (insulation, boilers, lighting).

Look for properties with D or E that can be improved.

Q10: EWS1 forms

Answer:

Required for apartments due to safety standards after Grenfell.

Banks may refuse mortgages without an EWS1 form.

Some lenders may accept properties with work planned within 6 months, but it must be documented.

Q11: Other general tips

Apartments require more careful checks than houses.

Always consult a mortgage advisor for guidance.

Remember, your mortgage is secured against your property, and repossession is possible if repayments are missed.

Conclusion:

Buy-to-let mortgages involve stress tests, property-specific checks, and lender requirements. Careful planning and professional advice are key to securing a mortgage and making a profitable investment.