Whilst buy-to-let mortgages are different to residential, one thing they do have in common is the costs involved in the process.
However, there are some slight variations such as a bigger deposit and other fees, charges and costs associated with buy-to-lets that you will need to consider.
The obvious one.
There is usually a minimum deposit of 25% but it can vary between 20-40%, depending on which lender you opt to apply to, with the better mortgage deals at the upper end.
The maximum amount you can borrow for a buy-to-let mortgage varies, and depends on the amount of rental income that you expect to receive from your tenants.
As a rule of thumb, lenders will want the rental income to be around 25-30% higher than what you’re paying on the mortgage.
Put simply, the bigger the deposit, the better you look and the better the interest rates the lender will offer you will be.
Once you have had an offer accepted on a property, your lender will need to carry out a valuation to ensure that it’s worth the amount that they’re lending to you.
Some lenders incorporate this into the mortgage repayment, so you won’t have to pay anything up front, but if they don’t, then you will need to pay between £200 and £500 for this. The actual cost will usually be determined by the type and of cost of the property that you’re buying.
Whilst a lender’s valuation tells you about the value of the property, it won’t tell you anything about the condition of the property or any underlying issues it may have.
To do this, you will have to commission your own survey from an independent surveyor which your solicitor will often recommend for you or you can choose your own at the Royal Institution of Chartered Surveyors.
The cheapest and most basic survey is known as the Home Condition Survey which is usually recommended for new-build homes and costs around £250.
A more in-depth survey, known as a Homebuyer’s Report, which also includes a valuation that your mortgage lender could use, is also available for around £400.
The most detailed survey, known as a Structural Survey, is ideal for older or listed buildings is available for anything upwards of £600.
Local Authority Searches
To ensure that there are no planning issues with your property – i.e. a major road or property development being built nearby – that could affect your purchase, a search will have to be carried out for around £300.
As expected, lenders charge for lending you money.
On top of the interest that you’re charged on your mortgage, there will also be fees that you need to pay.
There are arrangement fees that are usually charged as a percentage of the loan and can be around the £1,500 mark as a result, but you should get the option to add this to the mortgage, so you don’t have to pay it back in one lump sum.
You also need to consider administration and product fees, and depending on the type of mortgage or property, you may have to pay an additional £50 or so to have the mortgage money transferred to the seller’s solicitors.
Nowadays, many lenders waive a lot of these fees, but you still need to double check what’s in your mortgage offer.
In order to handle all of the legal aspects of your purchase, you will need to hire a solicitor or licensed conveyancer.
They will handle everything from the payment of Stamp Duty to the transfer of the funds.
Your mortgage broker will be able to recommend one, but you can choose your own if you wish, and it will usually cost between £500-£750 – depending on the size of the mortgage.
As a landlord, you will need landlord insurance to protect you against everything normal house insurance would, as well as non-payment of rent or damage to your property by your tenants.
There’s no legal requirement for you to have this insurance, but your lender may instruct that you need to have this as part of their agreement.
A standard home building and contents insurance policy won’t apply to some of the risks that you face as a landlord such as loss of rent so you need to ensure that you get landlord insurance to avoid being affected.
For advice on the costs involved in getting a mortgage if you’re a landlord, speak to one of our expert advisers who will be able to help you with the next steps.