Are Buy to Let Mortgages More Expensive?

If you are considering making a new investment in property, one of the first questions you might be asking is, "Are Buy to Let mortgages more expensive than residential mortgages?"

The simple answer is that they often can be, but there is a fair bit more to the story. The cost of a Buy to Let mortgage will depend on several different factors, including the size of the deposit you have and your previous experience as a landlord, along with the type of property you are thinking of purchasing.

While Buy to Let mortgages do often have different lending criteria compared to residential mortgages, they can still offer a very attractive way for investors to build up a strong property portfolio and generate good rental incomes in the long term.

In this guide, we will explain why Buy to Let mortgages can sometimes cost more and what actually affects the mortgage rates offered, along with some tips on how potential investors can improve their chances of securing themselves a more competitive deal.

What Is a Buy to Let Mortgage?

A Buy to Let mortgage is a mortgage that has been specially designed for people purchasing a property with the intention of renting it out to tenants.

Unlike a residential mortgage, where the borrower will be living in the property themselves, a Buy to Let mortgage is intended for investment purposes.

Buy to Let properties can range from a single rental home to larger property portfolios and specialist investments such as Houses in Multiple Occupation.

Because these properties generate rental income for the landlord, lenders will often assess affordability differently from how they would with residential mortgages.

Are Buy to Let Mortgages More Expensive Than Residential Mortgages?

In many cases, yes they are.

Historically, Buy to Let mortgage rates have usually been slightly higher than residential mortgage rates and there are several reasons for this.

From a lender's perspective, investment properties can carry different risks compared to owner occupied homes. Rental income can fluctuate, tenants may move out, and landlords may face periods where the property is vacant.

As a result, lenders often price their products to reflect these additional considerations.

However, the difference in cost is not always significant. Competition between lenders has increased considerably over recent years, meaning there are now many attractive Buy to Let products available for applicants how lenders deem to be suitable.

It is also worth keeping in mind that mortgage rates are only one part of the overall cost of borrowing.

Why Are Buy to Let Mortgages Sometimes More Expensive?

Several factors contribute to the pricing of Buy to Let mortgages.

One of the biggest considerations that lenders have to make is risk. Residential homeowners generally prioritise paying their mortgage because it is their primary residence. Investment properties may be viewed differently by lenders because they completely rely on tenants being there to generate the required rental income.

Lenders also need to consider any potential void periods and ongoing maintenance costs, along with the wider property market conditions.

Another factor is affordability. Rather than relying solely on an applicant's own personal salary, Buy to Let lenders will assess whether the expected rental income the property will generate will be able to comfortably cover the mortgage payments each month.

The specialist nature of certain investment properties can also have a large influence on pricing. For example, HMO properties or limited company investments may have different lending criteria compared to standard Buy to Let properties.

What Factors Affect the Cost of a Buy to Let Mortgage?

There is no single answer because each and every application is different.

That being said, one of the biggest influences is the size of your available deposit. In the vast majority of cases, a larger deposit may provide access to a wider range of mortgage products and potentially more competitive rates. For more detailed information on this, make sure that you read our full article on how much deposit is required for a buy to let here. 

Your experience as a landlord can also play a role. Some lenders have products specifically aimed at experienced investors, while others are happy to consider first time landlords.

The property being purchased itself matters too, as lenders will assess factors such as its location, the property type, along with current rental demand in the area, and the expected rental income.

Your own personal credit history and overall financial circumstances can also affect the products available to you.

Finally, the lender's own appetite for certain types of property investment can influence pricing and eligibility.

How Much Deposit Do You Need for a Buy to Let Mortgage?

Deposit requirements vary quite a bit between lenders.

Many Buy to Let mortgages do require you to have a larger deposit available than a standard residential mortgage. This reflects the investment nature of the property and the lender's assessment of risk.

The exact amount required will depend on the lender and the circumstances of the application.

A larger deposit may improve the range of available mortgage products and potentially reduce the interest rate offered.

How Do Lenders Assess Affordability?

Buy to Let affordability works quite differently to residential borrowing.

Rather than only focusing on personal income, many lenders will also place a significant emphasis on the property's expected rental income.

This is because they want to make sure that the rental payments are sufficient to cover the mortgage while providing a margin of safety.

Some lenders will also consider the applicant's own personal income and overall financial position, this particularly common in the cases of first time landlords or more complex applications.

Because every lender uses a different set of calculations, understanding the available options can sometimes be challenging.

Are Limited Company Buy to Let Mortgages More Expensive?

This is another common question that is asked among property investors.

Limited company Buy to Let mortgages, often referred to as SPV mortgages, can sometimes have quite different pricing structures compared to personal Buy to Let borrowing.

However, the difference is not always that substantial. As the market for limited company lending has grown quite a bit recently, competition among lenders has increased.

The mortgage rate available will depend on factors such as the property, deposit size, rental income, and the overall strength of the application.

For investors who are considering purchasing property through a limited company, professional mortgage and tax advice can help to make sure of the most informed decision making process.

Can First Time Landlords Get Competitive Buy to Let Mortgages?

Yes, they can.

Many people are often quick to assume that Buy to Let mortgages are only available to experienced landlords, but this is not necessarily the case.

Several lenders do offer products that are designed for first time landlords, although eligibility criteria may vary.

Lenders will often consider factors such as your income, credit history, deposit size, and the property's expected rental income.

While the pool of available lenders may differ from that available to experienced investors, there are often suitable options for first time applicants.

How Can You Reduce the Cost of a Buy to Let Mortgage?

Although mortgage pricing cannot be controlled directly, there are some steps potential investors can take in order to strengthen their application.

Saving a larger deposit can improve the range of available products that will be available to you. While, maintaining a strong credit profile may increase your chances of securing more competitive rates.

Doing some in depth research on areas with strong rental demand can improve affordability calculations based on rental income.

Finally, seeking independent buy to let mortgage advice can help identify lenders that best suit your individual circumstances and investment plans.

How Can Vincent Burch Mortgage Services Help?

The Buy to Let mortgage market offers a wide range of products and each comes with different criteria and requirements.

Understanding which lender is best suited to your own personal circumstances can take time, particularly if you are a first time landlord or purchasing through a limited company.

At Vincent Burch Mortgage Services, we provide independent mortgage advice and are here to help investors explore Buy to Let mortgage options from across the market.

Whether you are thinking of purchasing your first investment property or refinancing an existing Buy to Let mortgage, our team of experienced advisers can help you navigate the options that are available to you and understand the lending criteria that may apply to your circumstances.

FAQs

Are Buy to Let mortgages more expensive than residential mortgages?

In many cases, they can be. However, the difference will varies depending on factors such as the available deposit size, the property type, and the lender's criteria.

Why are Buy to Let mortgage rates sometimes higher?

Lenders often view investment properties as carrying a different set risks, including tenant turnover and potential periods without rental income.

Do Buy to Let mortgages require a larger deposit?

Many lenders require larger deposits for Buy to Let properties than for residential mortgages, although requirements vary.

Can first time landlords get a Buy to Let mortgage?

Yes. Many lenders consider first time landlords, although eligibility criteria differ between providers.

Are limited company Buy to Let mortgages more expensive?

Not necessarily. Pricing depends on the lender and the individual application, and competition in the market has increased significantly.

How is Buy to Let affordability assessed?

Many lenders focus heavily on expected rental income while also considering the applicant's financial circumstances.

Can a mortgage broker help find competitive Buy to Let mortgages?

Yes. An independent mortgage broker can help compare lenders and identify products suited to your individual circumstances.

How can Vincent Burch Mortgage Services help?

Vincent Burch Mortgage Services provides independent mortgage advice and can help investors explore Buy to Let mortgage options from a wide range of lenders.