9 steps to getting a mortgage for your BTL

Summary

Some lucky people (like the Queen) own property outright—and lots of it! But many buy-to-let investors start with little more than a mortgage on their first BTL property. So if you want to explore the best way to start a portfolio and get a mortgage, read on!

Save up

The first thing you need to do if you are thinking about getting any mortgage is to save for a deposit. Depending on how much you can save will get you the best rate. The absolute minimum you will need is 5% of the asking price of your property. If you can save 10% or more, you’ll be able to get more favourable terms.

Cut back on spending if need be

While this sounds almost the same as the previous note, you need to prove to a mortgage lender that you have the slack in your income to be able to afford the mortgage. If you spend all your income, you are in no position to take on a large loan, so around six months before you apply for your mortgage, make sure you cut everything unnecessary, such as expensive holidays.

Check your credit report

Having excellent credit is vital to getting a mortgage approved. To avoid any nasty surprises down the line, get a credit report and make sure everything is in order. If you see any errors or issues, you can contact the relevant companies to pay off debts or holders of any inaccurate financial information about you.

Work out how much you wish to borrow

If you are starting out and still starting your career, your salary and the amount you can borrow will be lower, so use a few mortgage calculators to work out how much you will need to pay back each month. You can go one step further and ask a mortgage lender to give you an agreement in principle. This is where a lender will agree to offer you an amount they will lend, subject to your documents and earnings being correct and a suitable property is chosen.

Choose a mortgage type

Just like most things in life, mortgages differ significantly. You can choose a fixed, variable or tracker mortgage. A fixed rate is helpful if you are able to lock in a low rate. A variable mortgage tracks the lender’s interest rate, and a tracker follows the Bank Of England’s interest rate. If you have some slack in your income, a variable might be best. If you don’t have any spare cash, it’s best to lock in a deal.

In addition to these mortgage types, do you wish to own the property at the end of the term? If so, you’ll need to pay extra and get a repayment mortgage. Most BTL mortgages are interest-only, and after the mortgage term, the bank will still want the original loan amount back. However, your property ought to have increased easily enough to leave you with a very tidy profit after a typical mortgage term of 15-25 years.

Get your paperwork ready

You will need to get your paperwork ready for the bank to process your mortgage application. The items you will need are:

ID such as driving licence or passport
Payslips for the last 3 months and your P60 tax return
Bank statements from the last 6 months
Utility bills from your current address

If you are self-employed, you’ll also need accounts, self-assessment and HMRC tax returns, and proof of potential contracts in the future.

Enlist the help of a mortgage advisor

If you have any issues with some of the above steps, then it’s well worth using a mortgage advisor to do just that. They can help you deal with credit issues, paperwork, advise you on how much you should borrow and, which type of mortgage and the mortgage term best suited to you. Even if you are clear on all those things, there are several benefits to getting professional help.

Many people think a mortgage advisor is an added expense you can do without. But, you can get mortgage advice completely free from Trussle. And if Trussle can’t get you a mortgage offer in five days, they even pay you £100. And there’s no insistence you proceed with the application.

Mortgage advisors can help you with all kinds of things such as credit blips and might be of particular use to self-employed people with complicated earnings. A mortgage advisor can, therefore, increase your chance of success. They can also get you better deals as mortgage advisors have relationships with lenders. And they’ll also give you a friendly reminder of when your mortgage term is up, so you don’t end up on a costly variable rate by mistake.

Pick a suitable property and submit your application

Once you have worked out how much you can borrow, you can then start shopping for your first BTL property. You can’t apply without submitting details of the property. You’ll need information from professionals to ensure the property is sound and has no major problems such as damp, rot and structural issues. Your mortgage advisor can help you with this.

Receive your mortgage offer

Once you have your mortgage offer, you are almost good to go. This may take around four weeks. Your solicitor will then arrange for your mortgage lender to transfer the funds to the seller on the completion date.