Can I get a BTL mortgage on a Right to Buy property?
Lots of tenants who are aware of the Right to Buy scheme ask us whether they can buy their property from the council to let out through a buy-to-let mortgage, so we’ve created this guide to give you all the information you need.
If you’re in a hurry and have a specific question that you need answering, feel free to use our online chat and speak to one of our experts who can find you the answer.
What is Right to Buy?
Right to Buy is a government scheme that helps council tenants in England buy their home, through providing significant discounts on the market value of the property.
To fund the purchase, you’ll likely need a mortgage which can require a deposit although some providers allow borrowers to put their discount towards the purchase price.
Can I get a Buy to Let mortgage for my council house?
Getting a buy-to-let mortgage for a council home bought through Right to Buy isn’t possible within the first 5 years of you buying your home.
RTB dictates that a buyer has to live in the home as their main residence for a minimum of five years before they can sell it without losing and having to repay the initial Right to Buy discount, or begin to rent it out.
As an alternative option you could take out a residential mortgage to buy the property, wait 5 years and then remortgage onto a buy-to-let agreement.
However, this could be a complicated process without professional help, so always seek advice before applying for or ending a mortgage agreement early as you may have to pay early-repayment fees.
What’s the mortgage criteria for a buy-to-let?
Because the mortgage repayments for a BTL are reliant on the income from tenants, lenders may ask you questions regarding how you plan on securing tenants and managing the property.
The viability of the investment will also be a huge focus for lenders and the amount you can borrow for a BTL loan is usually based on how much rent it will generate offset against the cost of the loan.
That’s why many BTL lenders can require borrowers to also prove that they have sufficient enough income to cover their payments in the event that they have no tenants.
Property experts refer to this as rental yield and to calculate it, you divide your annual rental income by the property value and then multiply it by 100 to get your yield percentage.
Example of BTL yield:
If you bought your two bedroom council house for £100,000 and charged your tenants £600pcm, the annual rental income would be £7,200.
Annual rental income / property value (x 100) = 7.2%
What’s a good rental yield for an ex-council house?
Investors generally aim for properties with a rental yield above 5.5% because that indicates a good stability in rental income.
Looking at rental yields across different areas of the country and nearer to home can help you to determine how much you could charge your tenants as well as research the standard of accommodation currently available elsewhere on the market.
Our brokers can calculate the rental yields of various properties on your behalf, to give you a clearer picture and help you make the right decision.
They also research and compare lenders too, so working with them can help to save money as well as make the mortgage process a lot smoother.
Can I buy my council house on a BTL mortgage if I have bad credit?
Personal affordability will also be taken into account if you decide to apply for a BTL mortgage, so factors including credit history and income can affect whether you’ll be approved by some lenders but that’s not to say that getting a BTL mortgage isn’t possible without a perfect credit score.
Our bad credit guide has some really helpful information but you can always talk to one of our team if you have concerns about your credit history impeding your ability to buy your council house and rent it out.
023 8023 5555