Buying an investment property as a buy-to-let can be pretty expensive. Most people don’t have that kind of cash laying around, so they apply for a buy-to-let mortgage to help fund the purchase. There is quite a lot of criteria for obtaining a buy-to-let mortgage and some people wonder whether they can qualify if they do not have a regular job?
It is possible for someone to qualify for a buy-to-let mortgage without having a job, as there are a number of mortgage lenders that do not have a minimum income requirement. However, there are many other factors that mortgage lenders take into consideration when assessing a clients application.
You can get a buy-to-let mortgage if you find the right lender. The majority of mortgage lenders look for a regular annual income of £25,000 or more, but there are some lenders who are more flexible and may not even ask for proof of income. Mortgage lenders relax and tighten their criteria all the time depending on legislation and the current market conditions.
Mortgage lenders and other forms of lenders make their money by lending. They need to lend to turn a profit, so it is in their interest to adapt all the time. Some mortgage lenders will specialise and target a certain demographic which their competitors will not welcome. And this is great. This helps to create variety, competition and choice for the consumer.
That being said, you should keep in mind that getting a buy-to-let mortgage without a security blanket isn’t a good idea. Lenders that allow you to get a mortgage without a job will likely consider your savings and other assets, and will require you to achieve 125-145% of your monthly interest payments in rental income.
There are many landlords who have built a property portfolio over time and no longer work as an employee or business owner. They still have access to mortgage lenders as their rental income will be taken into account when seeking additional borrowing for other purchases.
As a new landlord though, keep in mind that you may not have tenants all the time, so you will need to have some money set aside so you can meet your monthly mortgage payments, even if you don’t receive any rental income.
What Is The Criteria To Get A Buy To Let Mortgage?
Now, you might be thinking that you’ll need a residential mortgage since you will be buying a house or an apartment, but that’s not true. You will need a buy-to-let mortgage. You might think that these two are the same but there are quite a few differences between them.
Residential mortgages are only for people who plan on living in the property themselves. Buy-to-let mortgages are specific to properties that will accommodate tenants, and they are considered a greater risk than residential mortgages. This is because there are no guarantees that you’ll always have tenants, and when you do, there is also a chance that you may have problems with rent collection.
When you apply for a buy-to-let mortgage you will be asked to pay a larger deposit because of that risk. Usually, the deposit for a buy-to-let mortgage is around 25% of the total value of the property, but it can also vary. In the past, some mortgage lenders have offered products with deposits as low as 10%, but conditions change all the time depending on current regulations and market conditions.
However, some of the best mortgage rates will require a 40% deposit of the total value of the property. When you are approved for a buy-to-let mortgage, other fees are also higher in comparison to residential mortgages. Sometimes the arrangement fees go up to 3.5% of the total value of the property you plan on buying.
When applying for a buy-to-let mortgage, you will need to decide whether you would like an interest only mortgage or a repayment mortgage. There are pros and cons to both which I have mentioned in my article Repayment Or Interest Only Mortgage for Buy To Let Properties. If you are not familiar with the two different types of mortgages and the benefits of each as an investor, I would recommend spending just a few minutes to read the post which will help you to make an informed decision.
How much you will have to pay each month depends on a few factors, such as the size of your initial loan, the rental value of your property, and your financial situation. It will also depend on whether you take a loan with a fixed, tracker or variable rate.
If you apply for a fixed-rate mortgage deal, it will usually last somewhere from 2 to 5 years. Choosing this type of mortgage means that you will pay the same amount each month until the end of the term. Some people like fixed-rate mortgage deals better because they know exactly how much money they have to pay each month. It also makes them feel more confident that they will meet the monthly payments more easily.
That being said, the rates for this type of payment are a bit higher than variable rates and you won’t benefit from falls in the interest rates.
When your fixed period is up, you will be rolled onto the standard variable rate of your provider, which are some of the most expensive products. Make sure you get a new product as soon as your fixed-rate mortgage deal is up.
You will also have the choice of a tracker mortgage which means that your monthly payments won’t be tied down to a fixed rate, and that you could benefit from low monthly payments if interest rates drop. However, you would pay higher monthly payments if interest rates were to rise.
The amount of money you can borrow will depend on how much rent your rental property is likely to achieve. Typically, you will have to pay somewhere between 125% to 145% of your rental income in monthly mortgage payments. Research similar properties in the area to see how much you will likely receive in rent.
Some people also believe that you have to have your own home in order to qualify for a buy-to-let mortgage. But this is not true. People who are not home owners may be restricted to fewer lenders, similar to those that are not in full time employment, but it is still possible.
Just like for any other mortgage or loan application, your financial situation will be assessed. A good credit rating will make it more likely for you to get a better deal and have a greater choice of lenders. It is also important that you don’t have large amounts of debt, or that you haven’t been refused for a loan within the last 6 months.
Your age is a factor when applying for a buy-to-let mortgage. You must be 18 years or over, but the upper age limit is not as restrictive as applications for residential mortgages. Some lenders have upper age limits and others do not.
Can I Qualify For A Buy-To-Let Mortgage If I Am Unemployed?
There are some niche lenders who offer buy-to-let mortgage products for people who are unemployed. Interest rates will likely be higher and there will be fewer mortgage products available for you to choose from, but if your proposed rental property meets all other criteria, it is possible.
Do You Need Proof Of Income For A Buy-To-Let Mortgage?
Most lenders will require you to provide proof of income when applying for a buy-to-let mortgage with your last 3 payslips if you are employed. Some lenders do not require proof of income, but you can expect to pay higher interest rates and receive fewer choices of mortgage products.
How To Get A Buy-To-Let Mortgage Without A Job?
The first thing you will need is capital. Having a deposit to the value of 25% of the total cost of the property you are looking to purchase as a buy-to-let will put you in a good position. A deposit below 25% will reduce the number of mortgage lenders and products available to you, even further.
Next, you will need to contact a mortgage broker. There are many mortgage brokers who are problem solvers. They will help to solve any problems you have so that they can win your business. So please don’t think that you will not be eligible for a buy-to-let mortgage if you do not currently have a job.
Contact a reputable mortgage broker and explain your current situation and listen to what they have to say.
And that is it. It’s as simple as that. It is not as complicated as you might have imagined. Will you get the results you are hoping for? Maybe, maybe not. But at least you will know. Regulations and market conditions change all the time, and what was possible last year, may not be possible this year and vice versa.
There will always be lenders who specifically target certain demographics to win their business, so don’t give up until you have spoken with a few specialist brokers. If you do not know a reputable mortgage broker, you can read my article article on How To Find The Best Mortgage For A Buy-To-Let Investment Property, which also includes details of my recommended online mortgage broker.
What Is ‘Top Slicing’ In Mortgage Terms?
In general, mortgage lenders look at the rental income a property could command to help determine whether a mortgage will be affordable. Mortgage lenders that use ‘top slicing’ will consider taking into account other forms of income the applicant receives, to counter any rental income shortfalls.
For example, if the rental income is likely to be £50 lower than the 125% of rental income requirement, and the mortgage applicant has other forms of regular income that can cover the £50 shortfall, then they would consider approving the application.
I would like to point out that this doesn’t mean that your investment property would be propped-up by another business or asset, I would never recommend that. Each buy-to-let property must be able to stand on it’s own two feet to be a worthwhile investment. But lenders stress test using higher interest rates for worse case scenarios, which is why I welcome the top-slicing practice.
What Happens If You Don’t Have A Buy-To-Let Mortgage?
Some landlords let their properties with residential mortgages. However, not all of them realise that they are committing mortgage fraud. A buy-to-let mortgage is typically more expensive with higher interest rates, which is why some landlords actively seek to let their property with a residential mortgage.
Other landlords have been known to apply for a residential mortgage whilst misleading their lender, while others buy a second property to live in and decide to rent it out first, without informing their current residential lender of their plans.
All landlords have to be aware of their mortgage terms and conditions to fully understand what the consequences will be if their lenders find out that they are breaching the mortgage terms. The lender could automatically switch them to a buy-to-let mortgage with a higher interest rate, or it’s possible that the lender will demand that they fully repay the mortgage immediately. Additionally, the lender may be within their rights to add financial penalties.
Landlords who use residential mortgages for properties that they let to tenants, could also be in breach of their landlord insurance.
Peoples circumstances change and lenders are fully aware of this which is why they have provisions for people to be able to amend their mortgage policies. If your circumstances change, it is best to inform your lender immediately. Informing your lender ahead of time, will allow you to make changes and avoid any penalties.
I have been in this position myself and benefited from ‘consent to let’. Whilst I was serving in the Army, I lived in service family accommodation and I had two buy-to-let properties.
The mortgage lender offered me a residential mortgage on one of the properties due to the nature of my work. They knew that as I travelled overseas and around the UK a lot, it was not practical for me to reside on my own private home. So they approved a residential mortgage, knowing that I would have tenants move in at the start.
Whether you are wanting to let a room to a friend for a while or whether you are wanting to let the whole property because you are planning on leaving for a while, you will need the lenders consent to do so to avoid breaching the terms and conditions. It is never a good idea to let a property stand empty for long periods of time, and if you are happy for someone else to occupy it whilst paying you rent, it can be very beneficial on both fronts.
The lease permission period, or a consent to let agreement, will enable you to change the conditions on your residential mortgage. This will allow you to let your property for a short period of time. Even though many lenders offer the lease permission period, you will first have to meet some conditions.
The first condition you will have to meet is that you are up to date with your mortgage payments. The second condition will be the requirement to use a legally acceptable tenancy agreement to rent out your property.
Keep in mind that the lease permission period is a short-term agreement that doesn’t allow you to rent your property out long term. If you want to rent out your property long term, you can use the consent to let agreement to rent it out while you’re changing your mortgage to a buy-to-let mortgage.
You should know that a consent to let agreement isn’t always free. You may be charged extra on top of your current mortgage fee, or it could be a one-time payment. Other costs of renting out your property include insurance, repairs, letting agents fees, and fees for drawing up contracts.
When you have consent to let, you are not committing mortgage fraud. It also allows you to try and let your property without committing to it long term. If you find that it doesn’t work for you, you can easily change your mind. Getting a consent to let is much easier than changing your mortgage in cases when plan on letting your property for short periods of time.
Since buy-to-let mortgages have higher interest rates than residential mortgages, obtaining short term consent to let can reduce the costs of your overheads compared to other buy-to-let properties. However, you should keep in mind that your property will have to meet legal health and safety requirements, and you may have to make the inside of your home more comfortable and attractive for tenants. The additional expenses might outweigh the savings you will make on mortgage payments, but it will still be worth it.
Once your permission period is up, your residential mortgage agreement will go back to the way it was before. If you want to continue renting out your property, you can apply for an extension of your permission or change your mortgage to a buy-to-let product. If you continue to let your property after your permission period is up, you will be committing mortgage fraud.