A guide on Buy to let mortgage deposits
People always wonder what size of mortgage deposit they will need for their buy to let mortgage. The short answer is that different buy to let mortgage lenders will usually have different eligibility criteria and so may require different sized mortgage deposits for their buy to let mortgage products but there are some things you can do to understand and get an idea of how much buy to let mortgage deposit you may need to get you over the line.
In this brief guide, we will explore how much buy to let mortgage deposit you may need and how to put yourself in a good position to get a mortgage offer from a buy to let mortgage lender.
How much buy to let mortgage deposit do I need?
Buy to let mortgage deposits are usually higher than the mortgage deposits required on residential mortgages. Buy to let mortgages could be anywhere from 15% to 40% but as you may know residential mortgages could have mortgage deposits ranging from 5% to 15% and residential mortgage borrowers could also call on a variety of first-time buyer or home mover government schemes which may be able to increase their mortgage deposit.
How much buy to let mortgage deposit you may need will really depend on the buy to let mortgage lender, your circumstances as a buy to let borrower and the property.
If a buy to let mortgage deposit is a big concern of yours then getting appropriate buy to let mortgage advice may be the best way to figure out what a realistic buy to let mortgage deposit requirement could potentially be for you.
what buy to let mortgage deposit will you need if you have bad credit?
If you have bad credit then you may find it is much harder to get a buy to let mortgage and you may indeed need a bigger buy to let mortgage deposit as mortgage lenders will likely like to reduce their loan to value rates on any buy to let mortgage product which you are offered.
Buy to let mortgage deposits are already much higher than the mortgage deposit requirements of residential mortgages but if you have bad credit then you may find that the buy to let mortgage lender may want you to increase your buy to let mortgage deposit or even put down collateral.
This is because the buy to let mortgage lender will either look to reduce how much they can lend to you through their loan to value or lend the amount you are seeking but seek extra security by way of collateral.
In some cases, you may be able to still access competitive buy to let rates with a standard buy to let mortgage deposit if you have bad credit but this will heavily depend on your individual circumstances and the circumstances surrounding the buy to let property which you want to purchase.
If the property for example, already has tenants who have had a good history of paying their rents on time or the property is generating monthly rental income which is more than 120% or more of the monthly buy to let mortgage repayments then you may find that a buy to let mortgage lender may be willing to allow you to put down a similar-sized buy to let mortgage deposit as if you didn't have any bad credit issues.
In regards to your individual circumstances a buy to let mortgage lender may be willing to lend to you and allow you to pay a similarly sized mortgage deposit as if you didn't have bad credit based n the nature of bad credit. If for example it was a CCJ that has now been satisfied or was immediately satisfied and you incurred itas you were having financial trouble which you can evidence such as being laid off work then you may find certain buy to let mortgage lender may be more willing to allow you to place a standard buy to let mortgage deposit.
To get access to buy to let mortgage advice you should speak to a buy to let mortgage broker but you may also want to speak to a bad credit mortgage broker who deals with buy to let mortgages as they may be able to offer more specialist advice in your situation.
When considering buy to let mortgages bad credit could be:
What buy to let mortgage deposit will you need if you are self-employed?
Getting a buy to let mortgage if you are self-employed may be challenging due to the fact that many self-employed borrowers may face issues when it comes to evidencing their income and not all mortgage lenders will accept 100% of evidenced income.
The good news is that the affordability for a buy to let mortgage usually focusses more on the profitability of the property rather than the mortgage affordability of the borrower but a buy to let mortgage lender will still want to see that a self-employed buy to let borrower could still keep up their monthly mortgage repayments if the buy to let property remained unoccupied for a prolonged period of time.
The buy to let mortgage deposit you may then be required to put down if you are a self-employed borrower will differ from mortgage lender to mortgage lender.
You should speak to a self-employed mortgage broker who has experience with buy to let mortgages so they may provide you suitable options and inform you of what buy to let mortgage deposit you may need.
What buy to let mortgage deposit will you need for a let to buy mortgage?
As a let to buy mortgage is a mortgage wherein theory you turn your residential mortgage into a buy to let mortgage you will simply need to have enough equity in your home for the let to buy mortgage lender to consider you for a let to buy. Some let to buy mortgage lenders may consider 20% equity enough whilst others may want more and in some cases significantly more.
Can you use government schemes to boost your buy to let mortgage deposit?
There is no government scheme for home buyers or home movers which you can use to enhance your buy to let mortgage deposit. In fact, most government schemes for home buyers and home movers are focussed on those who cannot buy their first residential home and not those who want to buy a commercial property regardless of if it is their first or not.
As commercial mortgages such as buy to let mortgages are primarily used to generate income this does not fall under the requirements of affordable housing and so you will find that no government scheme exists for this.
The government schemes you will miss out on due to buying a buy to let property include:
- Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you would also have been able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Where can you get your buy to let mortgage deposit from?
Different mortgage lenders will have different criteria on what sources of buy to let mortgage deposits they will accept.
Below are a few sources where you can potentially raise or use as your buy to let mortgage deposit.
releasing equity from another property.
It is very common to see buyers raise their buy to let mortgage deposit from the equity they have in another property. This could be by remortgaging to release equity from the property or simply by letting the buy to let mortgage lender place a second charge or first charge mortgage on that property. In some cases,(especially if the property has a residential mortgage) then you may need to get permission from the first charge mortgage lender before you look to place a second charge on the property through your buy to let mortgage lender.
If you are a professional landlord you may be able to structure your buy to let portfolio with a company as you may find this a more tax-efficient route to go through. When structuring your buy to let portfolio through a company You may be able to use your other buy to let properties as a buy to let mortgage deposit.
Not all mortgage lenders may accept this form of a buy to let mortgage deposit and you will really need to know which mortgage lenders may be best suited to you if you want to use this method. Some mortgage lenders may place a restriction on the number of mortgaged properties you could have under your limited company. Using a buy to let mortgage broker may make things much clearer.
Using a bridging loan
Some buy to let borrowers may be able to use a bridging loan when thinking of a buy to let mortgage deposit.
Bridging loans or bridging finance are short term loans which allow us to finance property but they do then to be more expensive than a standard mortgage over the same time period.
Bridging loans can be very good to use as a buy to let mortgage deposit as they can be quickly obtained for those borrowers who need to move quickly.
Bridging loans can also be used to acquire the full property and they are also normally used when renovation work needs to be done to a property. The briding loan lender will loan based on the gross development value of the property. This is how much the property is expected to be worth at the end of the development or renovation work.
Gifted buy to let mortgage deposit
Some buy to let mortgage lenders may also accept gifted deposits as a form of buy to let mortgage deposit. You may need a specialist mortgage broker to find you a buy to let mortgage lender who may be willing to lend to you if you have a gifted buy to let mortgage deposit or concessionary deposits. Gift deposits come in two types. A gift from an immediate family member or a present from someone who is not a close relation.
You may find it much harder to find a buy to let mortgage lender who is willing to accept a buy to let mortgage deposit from someone who has no relation to you or isn't within your extended family.
A concessionary purchase when referring to buy to let mortgage deposits is when someone sells a buy to let property to you at a discount. Some mortgage lenders may consider this as your buy to let mortgage deposit.
personal loans as a buy to let mortgage deposit
You may be able to use a personal loan as a buy to let mortgage deposit but not all mortgage lenders will accept a personal loan.
The personal loan will have to be unsecured and most buy to let mortgage lenders will only let you use it for a certain percentile of the mortgage deposit required and not for all of it.