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Buy to Let repayment mortgages

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 12, 2022

Buy to let repayment only mortgage lenders, rates and deals

You may not have been able to get a buy-to-let property mortgage for many reasons, whether you are a professional landlord or a first-time landlord.

There are many reasons for this, but we often hear that landlords were denied a buy-to-let repayment mortgage, also known as a “buy-to-let home loan”.

This article will discuss the differences between interest-only and repayment buy-to-let. We’ll also explain how to find the best advice for your situation.

Enquire today to speak with a mortgage broker regulated by FCA’s financial conduct authority. We will ensure to get you the best mortgage deal.

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What is a buy-to-let capital repayment mortgage?

Buy-to-let interest-only mortgages and capital repayment mortgages are two different products. Repayment mortgages are where regular payments reduce the capital you owe at the end of the mortgage. Interest-only mortgages only require you to pay interest rates until the end of the term. Capital will then need to be repaid fully.

If you take out a £200,000 loan with a repayment mortgage at 4% over 25 years, then by the 20th, you will only owe £57304. By the end of the mortgage term, you will owe absolutely nothing.

However, interest-only loans will leave you with the full £200,000 at 25 years. This applies to all residential mortgages, not just buy-to-let properties.

Benefits of a buy-to-let repayment mortgage

  • The property becomes free and clear of any outstanding capital at the end of the selected mortgage term.
  • As a percentage of capital is being repaid with each monthly mortgage payment and the balance gradually decreases, there are more attractive interest rates as the term progresses.
  • The monthly commitment is more significant in the latter years of a capital repayment mortgage. This means that the interest paid will be lower.

Advantages of a buy-to-let repayment mortgage

  • A repayment mortgage is a secured loan that guarantees the capital will be repaid at its end. However, there are some downsides to it.
  • The monthly commitment is more than the interest-only, so additional steps must be taken to ensure affordability.
  • High street lenders are more cautious about the repayment of buy-to-let mortgages due to the higher monthly commitment. Access to these mortgages may require specialist mortgage lenders. We have access to these lenders and can help.
  • Lenders offer lower maximum loan amounts because of higher outgoings.

Do I choose an interest-only mortgage or a repayment buy-to-let?

Many landlords ask us if buy-to-let mortgages should be interest-only or repayment. The answer is not a simple yes or no. Your unique situation and investment goals will determine which route is best for you.

In recent years, landlords have been moving to interest-only. This is due to the lower monthly mortgage commitment, and the more down payment is a safety buffer when the property isn’t being let.

However, interest-only mortgages have drawbacks, and you must carefully consider how the capital will be repaid after the term ends. You will see that a full-term interest-only mortgage can result in higher interest repayments than a repayment mortgage.

Hypothetical Example:

If you held a £160k mortgage @ 4% for more than 25 years,

Monthly interest-only repayments of £533.33 would be made with the interest of £159999 and capital of £160,000 (Total £319999).

A repayment mortgage would require monthly payments of £844.54 with a total cost of £253,362.

You can see that the monthly repayments for a repayment mortgage are significantly more expensive than the total cost. However, it is still cheaper overall.

There may be good reasons for a buyer to choose the repayment or interest-only route when purchasing a property. Talk to one of our advisors for the best advice about which option is right for you.

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What Stamp Duty can I expect to pay for a BTL?

Stamp duty is a tax paid when a property is purchased in the UK. However, recent changes have affected stamp duty for buy-to-let properties. The following stamp duty rates will apply from April 2016:

  • Properties up to £125k- 3%
  • £125k – £250k – 5%
  • £250k+ – 8%

These figures are based upon recent HMRC information and are not accurate when written. We can provide advice from our experts on any changes that have occurred.

Eligibility for a buy-to-let repayment mortgage

Payment-based buy-to-let mortgages tend to have more strict eligibility requirements than standard mortgages. Our team of experts can help you with this. They are experts in buy-to-let mortgages and can help you find the best mortgage for your needs.

Many factors can influence your decision to buy to let a repayment mortgage. Which lender you may be approved for will also affect your choice.

  • Personal income and affordability
  • Credit history
  • Type of property
  • Employment
  • Personal circumstances

Who has the best buy-to-let mortgage rates?

It all depends on the amount of LTV (loan-to-value) the client is willing to pay. Some clients will accept 80 to 85% LTV, while others would prefer 90% LTV.

Customers may require a buy-to-let repayment mortgage without an early repayment fee. This allows for some flexibility in case their circumstances change. We can help because we work with experts in this area.

It is important to remember that only a few people can get the best deals in the market. The sheer number of products and lenders available can make it difficult for the majority to get the best rate.

To get the best deal, you should always enquire and talk to the experts who work with us to ensure you receive the right advice.

Top-Slicing: Using your personal income to borrow more for a buy-to-let

As mentioned above, a mortgage application for buy-to-let is evaluated by looking at the rental income. However, some lenders may consider using the borrower’s personal income if the borrower has a lower payment.

This is common for higher-income earners, but it can also be helpful if rent is low. It is called top-slicing.

Referring to the previous example, although lender A won’t allow top-slicing, lender B, with a higher income coverage ratio (ICR), will enable personal income. This could qualify for a lower rental income and allow for a higher loan amount.

Other lenders may use an affordability assessment to create a customised approach for each person’s situation.


Early repayment fees for buy-to-let mortgages

Few buy-to-let mortgages do not have early repayment fees, unlike many others.

These are great if you want to sell your property quickly and without paying a fee.

Ask one of our expert advisors about the best options.

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What does bad credit have to do with your buy-to-let mortgage repayments?

Many landlords have had credit problems in the past, but they have obtained a buy-to-let mortgage repayment mortgage through our expert advisors.

The issues on your record will determine which mortgage option you choose.

  • Overview of adverse credit
  • Credit score low
  • Mortgage arrears
  • Defaults
  • County Court Judgements (CCJs).
  • Individual Voluntary Arrangements
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

The type of issues and the time they were made will affect your mortgage choice.

Speak to an expert advisor on buy-to-let

Our team of experts helps first-time and repeat landlords get buy-to-let mortgage repayment mortgages.

Their knowledge and experience will ensure that you get the best mortgage for you based on your circumstances.

We are available to answer your questions or to make an enquiry online.

Relax, and let us find the buy-to-let broker who is the best fit for you. There is no fee, and you are not under any obligation.

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