There are two specific types of buy-to-let funding: regulated and unregulated. A regulated buy-to-let mortgage (sometimes referred to as a family buy-to-let) revolves around a property:

• That you will occupy at some point as an owner
• You plan to let to a family member
• Of which you own at least 40% (with the remainder let to third parties)

These can sound like unusual scenarios, but they are surprisingly common. Buying a property for children going to university in the UK, a retirement home you will live in later in life, providing accommodation for elderly parents, or house vulnerable or unwell family members is very usual. If you are an expat, you might also find you will be looking at a regulated buy-to-let property if you are purchasing a home that you plan to live in, in the future.

Unregulated buy-to-let mortgages – often referred to as investment property loans – are straightforward. These are mortgages available to landlords looking to buy property to rent out to third parties. The vast majority of buy-to-let funding in the UK is unregulated.

Unregulated mortgages are provided by high street banks, private banks or niche lenders.

How Lenders Will Assess You

Lenders have very different ways of calculating affordability. As a result, there are significant differences in the way they will assess affordability for buy-to-let properties. The difference stems from the fact that high street banks and private banks/niche lenders are funded differently and have different risk appetites.

In most cases, lenders will calculate affordability by looking at your income, although some will consider your potential rental income. Lenders are usually looking to ensure that rent cover is at least 150%. They do this to ensure you can comfortably cover mortgage repayments in the event of short-term non-occupancy of the property. 150% rent cover is standard but can vary from lender to lender. Because non-occupancy can significantly impact cash flow, this “headroom” offers a degree of security to lenders and you as a borrower.

In addition, many traditional banks looking to lend money to buy-to-let investors have strict minimum income requirements of £25,000 a year. They often discount the rental income on the buy-to-let property (or properties) in question. The situation has changed a little recently, although many banks still insist on this minimum income.

Private banks and niche lenders are slightly different in that they will consider worldwide assets and various income streams when traditional banks can often struggle to do so.

Rates: Short-Term Trackers to Long-Term Fixed

There is quite literally something for everybody when looking at the array of different interest rates available in the buy-to-let mortgage market. With the UK’s base rates currently so low, there is significant demand for short to medium-term fixed rates. Some buy-to-let investors have even gone as far as to secure their mortgage rate beyond the traditional five-year period to give them clearer visibility going forward.

In recent years, buy-to-let investors have been interested in tracker interest rates, which follow base rates plus a fixed margin for the mortgage lender. There are various options here, and you can follow UK base rates if you are buying in the UK, or European base rates if you are buying in Europe.

Ultimately, the rates you are offered will depend vastly on what you can bring to the table. The more liquid you are and the steadier your income, the more choice you will have. You will also have more options if you have a significant property portfolio valued in the tens of millions of pounds. One of the main benefits of such a large portfolio is the considerable cash flow and the use of paid-up properties for security/remortgaging opportunities. There are some extremely attractive fixed-rate mortgages available. As average rental yields are significantly higher than mortgage interest rates, there is usually potential to maximise your assets and increase income.

Whatever the size of your portfolio, circumstances or situation, Enness will be able to deliver the most competitive rates and terms on the market.

Property Portfolio Size

In theory, managing a portfolio of buy-to-let properties should be relatively simple, assuming everything goes to plan. However, the majority of buy-to-let investors will at some point experience difficult tenants, late payments, legal costs, and perhaps more importantly, time management challenges.

While each scenario is very different, as your property portfolio increases in size, this will present different challenges and time constraints along the way. In this scenario, the thoughts of many private landlords will move towards appointing a property management company to look after their assets. While there will be a management charge to consider, there is always a tipping point when a property portfolio becomes too much for one person to administer. As the regulations continue to tighten (often impacting profit margins), mistakes can be costly and place significant pressure on cash flow. Lenders don’t necessarily have a preference for borrowers using property management companies or personally overseeing rentals. However, they will want to know that you can keep a firm grip on your portfolio and handle the challenges that come with letting property with ease. If lenders potentially perceive that you are too close to the tipping point of finding it hard to manage, they may want more reassurance that you will consider working with a management company before they will let you borrow.

Ultimately, when, or even if, you should consider appointing a property management company will depend on your experience. However, if your particular skill set is identifying properties to acquire, then it may be sensible to focus on your strengths and employ the skills of third parties to manage your assets.

If you need a high-value mortgage for a buy-to-let property, you will most likely be best served by private banks and niche lenders. Generally, they will offer you more flexibility and more advantageous terms than high street banks, although it’s important not to overlook the latter altogether. Traditional lenders can still offer very competitive finance packages, but these tend to be for very plain vanilla deals where you have sufficient regular income to cover mortgage repayments (which, by extension, fits with the new affordability calculations introduced by regulators). As a consequence of Enness’ long-term relationships with many traditional banks, there is a greater degree of flexibility when instigating face-to-face negotiations. So, while most multi-million pound mortgages still tend to be the domain of private banks and niche lenders, this is not always the case.

High Street Banks

High street banks in the UK are funded very differently to other lenders. Consequently, they have experienced a tightening of regulations and the introduction of affordability calculations to reduce the risk profile of the financial markets. There is a degree of flexibility for bespoke arrangements, but in some cases, there are restrictions on how far the high street banks can go.

Specialist Lenders

Specialist lenders are a vital part of the UK mortgage market, often offering those with non-traditional finances the opportunity to secure mortgage funding. As with their private bank counterparts, they tend to take a more rounded approach when it comes to borrowers with multiple income streams and global assets. Many will also be open to international finance requests, which may be challenging for other lenders. Despite the specialised nature of these groups, they will still accommodate vanilla mortgage funding applications.

Private Banks

Private banks have become the first port of call for many non-traditional mortgage funding applications. Most private bank mortgage funding agreements tend to be bespoke, which is usually likely to benefit you as it will be tailored to your requirements. Comparing headline interest rates with high street bank mortgages is often akin to comparing apples and pears: a slightly higher interest rate can often come with significantly more flexibility, better terms and other advantages.

Private banks have become extremely popular with high-net-worth individuals looking for a buy-to-let mortgage and who may also be looking for additional wealth management services. These lenders can offer extremely attractive, often subsidised, headline mortgage interest rates to tempt customers. In return for these rates, many mortgage arrangements will also involve the transfer of additional investments to the bank’s asset management division – a loose form of security.

Where other lenders can be focused on rigid underwriting and risk tests, private banks are usually more flexible. You will usually be able to put forward global assets and multiple income streams as collateral for a buy-to-let mortgage.

The majority of private banks tend not to publicise their services openly, and as a consequence, many remain “invitation only”. Enness can approach private banks you would not be able to access through traditional contact routes.

Bridging and Short-Term Lenders

You may wish to acquire a buy-to-let property that you will renovate or upgrade before renting it out. As a consequence, bridging or short-term funding is often used to finance the cost of the work. Later, you can remortgage the property at a higher value. Short-term finance of this nature can last anywhere between 24 hours and three years, and interest rates will reflect this.

If you want to pursue bridging finance and later remortgage your buy-to-let investment, Enness’ team may suggest that they arrange the remortgaging deal at the same time as bridging/short-term finance. Doing so ensures repayment of the short-term finance as quickly as possible and re-bases the debt on a more traditional mortgage interest rate. For their part, bridging finance lenders will usually be happy to know that you have a solid exit plan.

Peer-to-Peer and Alternative Lenders

The last few years have seen an explosion in property funding provided by peer-to-peer platforms (otherwise known as crowdfunding). While not always suitable for bespoke buy-to-let mortgages, they offer a viable alternative for vanilla funding requirements. The fact that the transaction is on a peer-to-peer basis effectively removes a layer of charges which is usually reflected in the overall cost. On the downside, peer-to-peer funding of property transactions offers limited regulatory protection at this moment in time.

International Banks Many - but not all - banks are willing to lend to expats and international investors. As with many high-value mortgages, most deals from these lenders are not generally promoted to the broader public. Here, introductions are essential, and working with a team like Enness that knows which banks can work with expats or facilitate international investments will go hand in hand with a quick and effortless deal. This is where Enness makes full use of our numerous contacts in the market to arrange vanilla or bespoke buy-to-let mortgage funding.

As your property portfolio grows, you will see special situations arise that will require a tailored approach. Whether looking at rental income, property values or redevelopment, you will want to be aware of the best means to maximise buy-to-let lending and minimise costs.

When Rental Income Doesn’t Cover Your Mortgage: Top Slicing

The buy-to-let mortgage lenders who consider rental income will have a set cover ratio. On average, this works out at around 150% (boiled down to the most basic maths, if you need to pay £1000 in monthly mortgage payments, the lender would need to see at least £1500 in monthly rental income).

Top slicing is used when there is a shortfall in rental income, and the ratios (which vary from lender to lender) are not met. In this scenario, the lender will consider your personal income and any potential surplus in addition to other factors. Each lender will have a different calculation and way in which they view surplus income. The idea is that part of this surplus income would be committed to the repayment of monthly mortgage liabilities – effectively covering the rental income shortfall. However, there can be issues if you have a large portfolio as the lender may need to recalculate affordability, top slicing included, for all properties you own.

Letting A-Main Residence When You Buy Another Property

You may wish to rent your current main residence with the intention of buying another property. If you want to do so, there are several factors to take into consideration. If you have an existing mortgage on a property you wish to switch to a rental property you let out, you will need to inform your mortgage provider. There are legal and subtle differences between residential mortgages and buy-to-let mortgages, and lenders will take a different approach to this type of switch.

If your current primary residence is paid up in full and you don’t have a mortgage, you can either remortgage your home or take out a mortgage on another property. With no outstanding mortgage, future rental income could be used in tandem with regular income to increase borrowing potential for a mortgage on another property. It is certainly worth taking advice on how best to utilise the original property asset to minimise the interest rate on any new mortgage funding. There is also the issue of increased stamp duty on a second home purchase which may present the option to use a company structure to house one or more properties.

Redeveloping Properties Before Renting Them

Short-term finance (usually known as bridging loans) are beneficial if you want to develop or build a property. For these kinds of projects, your lender will usually stagger the release of payments. When pre-agreed milestones are met on the build or development, the lender will ensure the work has been carried out and will then release funds to finance the next stage of work. Staggering payments in this way is beneficial for you as you won’t pay interest on all funds for the entire term of the loan, and at the same time, the lender’s risk is reduced if you don’t complete work on time or if you run over budget.

How is it advantageous to you?

• After the redevelopment/rebuild work, you’ve increased the value of your property to £3.2 million, essentially creating an additional value of £700,000.
• You use this new finance to pay off the original mortgage and the bridging loan. You can then go on to remortgage the property based on its new value. You can use any additional funds raised through the remortgage to reduce the LTV (thereby decreasing the headline interest rate) by retaining equity within the property or for other investments.

High-Value Buy-to-let Property: Mortgages Over £3 million

If you need a three-million-pound-plus buy-to-let mortgage, the best way to maximise funding and reduce headline interest rates is to utilise all your income streams and all assets. Traditional buy-to-let mortgages tend to require an initial deposit of around 25% of the property value. However, Enness may be able to negotiate how much you have to put forward.

Often private banks or niche lenders have more desire to lend against high-value rental properties and will require lower deposits if you transfer assets to the asset management division of the lender. As well as offering more flexibility than high street creditors, private banks and niche lenders will most likely be Enness’ first port of call for negotiations if you have a more complicated situation. Multiple income streams and assets dotted around the globe are the norm for many high-net-worth individuals, but many (traditional) lenders will struggle to be able to utilise global assets or unusual income to offer you a competitive rate. For their part, private banks and niche lenders are more flexible. They can create bespoke arrangements taking your current and future income, assets and plans for the future into consideration.

However, high-value buy-to-let mortgages aren’t only served by private banks and niche lenders. If you have a non-complex transaction, you may find that mainstream banks can offer you an attractive mortgage that meets all your needs and can be highly competitive when compared to other types of lenders. To this end, Enness has extremely strong relations with many of the UK’s high street banks. Your broker will know what kind of scenario these banks can serve and exactly which lenders will offer the best deal. If you have the right circumstances, Enness will be able to negotiate very competitive finance from high street banks.