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The Truth About Buy-to-Let Mortgage Best Buys
At Clifton Private Finance, we help landlords get the best deals for buy-to-let (BTL) mortgages. With relationships with decision makers at the top UK mortgage lenders, our BTL team work tirelessly to compare current mortgage deals, breaking down the figures to help our clients make the right informed decision.
Often this means detangling the fine print. A list of buy-to-let mortgage best buys may include headline rates that seem too good to be true - and they often are. With understanding and a watchful eye, however, it’s possible to sort the good from the not-so-good. We can help you explore the buy-to-let mortgage deals that are more than just a sensational mortgage rate figure.
Looking for a Buy-to-Let Mortgage?
Why There’s No ‘Best’ Buy-to-Let Mortgage
Rushing into a mortgage based on nothing more than an eye-catching mortgage rate can be disastrous. Mortgages are a lot more than interest rates, and focusing on that single criterion can leave you exposed to fees and inflexible terms that bite hard further down the line.
The truth is: there’s a lot more to a BTL mortgage than just the rate.
What may seem like an unnecessary expense for one potential borrower is much-needed flexibility for another. The true BTL mortgage best buys are those that fit your requirements and don’t force you to bend to accommodate them.
This means:
- Considering whether ultra-low rates are worthwhile if they come with higher arrangement fees
- Planning remortgage strategies to avoid slipping onto large lender variable rates
- Balancing affordability tests against initial costs
- Determining if larger deposits or refurbishment capital is more advantageous
One landlord’s buy-to-let mortgage best buy is another’s inflexible arrangement and vice versa. At Clifton Private Finance, we work with you and compare every variable to help you make the right choice.
Why Headline Mortgage Rates Can Mislead You
If one lender’s mortgage rate is 2.65% and another’s is 5.99%, which are you going to choose?
It’s an easy mistake to make. Headline mortgage rates will catch your eye, and they’re designed to do so, but without careful analysis of the full mortgage terms, they can lead you down the wrong path.
Low-rate BTL mortgages often involve much higher arrangement fees. That 2.65% mortgage, for example, may also have a 7% arrangement fee, plus early repayment charges of 3%. If your plan requires reassessing and a possible sale or remortgage after 18 months, the costs associated with the low-rate could well exceed those accrued by the higher-rate deal.
Understanding Annual Percentage Rate of Charge (APRC)
In essence, the APRC is a calculation that tells you the true percentage cost of the mortgage each year, taking into account arrangement fees and other considerations. In a perfect world, ordering mortgages by APRC would present exactly the information that you’re after - the BTL mortgage best buys list.
This nuance is relatively minor for most consumer landlords, who can rely on APRC when considering fully FCA-regulated mortgages. Many business landlords, however, see APRC more as an effective warning signal: if the APRC is significantly higher than the listed mortgage rate, then there’s something you may not be seeing going on in the background. While this is valuable information, it can sometimes fall short of being a true indicator of the final mortgage cost.
What Brokers Mean by ‘Best Buy’ in the Buy-to-Let Landscape
For a mortgage professional, the best deal is one that provides you with the flexibility you need at a rate that’s most affordable for you. While mortgage rate is a key component, it’s not the only factor to consider.
1. Total Cost Over the Fixed Period
The majority of preferred BTL mortgages are 2-year, 3-year and 5-year fixed rates. These provide the short- and mid-term stability that landlords need to properly budget and manage their properties.
Calculating the total cost over this fixed period is the first step in properly evaluating the mortgage. This can then be presented as a total, spread monthly figure, or effective annual percentage rate - somewhat mirroring the APRC.
It’s important to note that this figure makes the implicit assumption that once the fixed period is ended, a new deal will be obtained through a remortgage. Passive mortgage management would mean that the mortgage moves to the lender’s variable rate at the end of the term, often adding unnecessary costs. This is where broker-calculated costs diverge from APRC, which makes better consideration for this potential outcome.
2. Affordability and Rental Income
Affordability will be the largest component to your application’s success and, in its simplest form, is the ratio between the monthly cost of the mortgage and the rental income used to cover it. Nonetheless, a low monthly mortgage rate does not necessarily mean more relaxed affordability.
Lenders apply a stress rate, adjusted by the interest coverage ratio (ICR), to determine affordability. As each lender determines their own stress rate, this may or may not be relative to the offered mortgage rate. For example, a mortgage may be set to 3%, while the affordability calculation uses a stress rate of 5.5%, adjusted by an ICR of 145%. What seems like an affordable mortgage from the outside may fail to meet stress test requirements on the inside.
At Clifton Private Finance, we understand different lenders’ affordability calculations, and our mortgage advisers can prioritise mortgage providers with lower stress rates, improving the chance of acceptance for our clients.
3. Exit Strategies
Not all BTL mortgages are intended for long-term landlording. Many property investors enjoy the opportunity to purchase a property, renovate and refurbish, and sell it on after a few years - often at the end of the first fixed term. These considerations can lead to different mortgage recommendations.
Understanding your exit strategy gives your mortgage adviser the information they need to compare BTL mortgage deals and find one with the flexibility that is best suited to your needs, potentially exploring those with reduced early repayment charges to allow for an immediate sale should the right offer come along.
Other exit strategies that may affect mortgage suitability include:
- Active remortgaging, with continuous market evaluation to minimise costs
- Capital release to expand portfolios
- Restructuring for tax advantages
- Moving to repayment structures to later build equity
Defining your exit strategy in the early stages will help ensure the most appropriate mortgage.
4. Portfolio Considerations
Landlords and businesses managing multiple properties will benefit from a holistic approach that considers existing mortgages and levels of equity in other properties to achieve the right mortgage deal. For these landlords, an attractive headline interest rate is of far less importance than the alignment of structural needs.
With experience in creating comprehensive mortgage portfolios for expanding landlord businesses, Clifton Private Finance will evaluate the larger picture of your property assets and explore the BTL and portfolio mortgages that meet long-term goals.
Best Buy-to-Let Mortgage Structures For Landlords
Different landlord goals are best served by BTL mortgages that are tailored to fit. Understanding which type of landlord you are will help you find your best buy mortgage.
First Time and ‘Accidental’ Landlords
Many people find themselves in the position of being a landlord for the first time almost by accident. In this situation, you may have formalised a relationship with a partner who also owns a home, moving in together and realising you have a spare property to rent out, or you may have inherited a property that you don’t want to live in, but neither do you want to sell.
Exploring landlording for the first time can be extremely rewarding, and many accidental landlords go on to obtain a second buy-to-let property and build a portfolio.
First-time landlords are best served with:
- Simplicity - Your mortgage should avoid complicated structures or require too much active oversight.
- Lower fees - Fees, especially upfront costs, can make becoming a landlord seem costly and off-putting. BTL mortgages with lower fees, often balanced by higher interest rates, are more suitable.
- Predictable monthly payments - Fixed terms can help you budget and balance rental income with meeting monthly payments.
Income-Focused Landlords
If your approach leans more towards immediate income than long-term investment, then keeping monthly repayments low is a core consideration. Interest-only mortgages are typically recommended here, offering the most cost-effective mortgage for short-term profits with repayments that are well-balanced against expected rental income.
Landlords in this bracket may want to consider higher initial investments, with larger deposits and frontloaded arrangement fees securing significantly lower rates.
Speak to a CPF mortgage advisor to learn more about gifting a mortgage deposit.
Long-Term Investors
Those looking for long-term investment benefit most from building equity in the property. Capital and interest mortgages (repayment mortgages) are generally preferred over lower-cost interest-only options, with longer mortgage terms worth considering to help manage outgoings and rent-to-mortgage stability.
Longer fixed-rate terms, such as five-year fixes, can help reduce administrative pressure. This way you can take time to consider exploring renovation and modernisation to increase your property value at each remortgage juncture.
Portfolio and Specialist Landlords
Limited company portfolio landlords managing more than four properties benefit greatly from customised mortgage arrangements. Bespoke underwriting that considers combined equity can lead to lower rates, increased flexibility, and the leverage needed to grow the portfolio as opportunities arise.
Specialist broker support will give you access to powerful financial tools, such as bridging finance and development finance to expand your business assets and fund long-term growth.
How Much Can You Borrow on a Buy-to-Let Mortgage?
Your buying power for a BTL mortgage depends on several factors that form the basis of lender underwriting.
1. Loan-to-Value / Deposit
The loan-to-value (LTV) of a standard interest-only BTL mortgage is typically 75%. This means an investment for a deposit of 25%.
While the 75% LTV figure is a good baseline, lower LTVs bring advantages, including lower rates that can often lead to softer affordability tests.
For most landlords, the size of the deposit is the largest contributing factor to overall purchasing power.
2. Rental Yield / Rental Income
Rental yield is a calculation that represents the ratio between the property value and the annual rental income, while rental income is the monthly rent your tenants will pay. Lenders will base rental income on existing figures if available (for example, with sitting tenants) and data that shows average rental yield in your area.
Rental income forms one part of the affordability equation, providing the income value to be measured against monthly mortgage costs based on stress rates. Consequently, rental yields and rental income are limiting factors for the size of your mortgage.
Some specialist lenders will accept topslicing, where your personal income is evaluated alongside rental income to determine affordability. With topslicing, you offer to top-up the mortgage if rental income comes short of meeting the mortgage repayment. Learn more about topslicing in our in-depth article.
3. Other Factors
Traditional factors, such as your age, the type of property, and your landlording experience, are considerations that some lenders could consider. Your Clifton Private Finance adviser can discuss any concerns you have and explore specialist lenders to find those who best match your circumstances, boosting your maximum mortgage size through understanding and lender alignment.
Get the Best Buy-to-Let Mortgage with Clifton Private Finance
Your ‘best buy’ buy-to-let may not be one with the lowest headline rate, the longest fixed-rate term, or the cheapest fees - but we can find it. Working with Clifton Private Finance means exploring the mortgages that are the best for you, taking into consideration your real circumstances and true needs. Together with your mortgage adviser, you can compare a range of suitable products, tailoring details to find the right lender and most appropriate mortgage deal available.
As a whole-of-market mortgage broker, CPF has access to the full range of mortgage products available, from the lowest rates, to the most flexible bespoke solutions. Book a free consultation with us today, and discover the best buy-to-let mortgage for you.
