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Repayment Mortgage for Buy to Let

Repayment Mortgage for Buy to Let

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Interest-only buy to let mortgages are the most common type of financing for investment property buyers and landlords. However, more and more investors are considering repayment mortgages as a viable alternative.

This alternative type of mortgage is referred to as a buy to let repayment mortgage or a buy to let repayment home loan, and in essence, is the same as a standard residential repayment mortgage albeit applying to an investment property.

Here we review the pros and cons of choosing a BTL repayment mortgage to help you make an informed decision. For tailored advice and recommendations about your financing options, call Revolution Finance Brokers on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk. 

What Is a Buy to Let Repayment Mortgage?

There are two different types of mortgage finance. Capital repayment means that the mortgage interest is paid monthly, with a proportion of the original borrowing amount. Over time, the capital owed against the property reduces, and the regular interest payments decrease.

An interest-only mortgage means that the monthly repayment is only for the interest payable on the original loan value. At the end of the loan term, the initial capital value remains payable and needs to be repaid by selling or refinancing the property.

For example, if you were to secure a £200,000 repayment mortgage over a 25-year term with a 4% interest rate when you reach the twentieth year of the loan, your outstanding balance will be £57,304. By the Twenty-fifth year, the loan will be repaid in full.

On an interest-only mortgage, when you reach year 25, you will still owe the full £200,000 you borrowed.

The following topics are covered below:

Benefits of a Buy to Let Repayment Mortgage

Downsides of Choosing a Repayment Buy to Let Mortgage

Buy to Let Mortgage Interest Only or Repayment?

Comparison: Interest-Only vs Repayment Buy to Let Mortgages

Stamp Duty Charges on BTL Properties

Applying for a Buy to Let Mortgage Capital Repayment Basis

Finding the Most Competitive BTL Repayment Mortgage Deals 

What Does Top-Slicing Mean in BTL Mortgages?

Early Exit Charges on Buy to Let Mortgage Capital Repayment Products

Securing a BTL Repayment Mortgage with Bad Credit History

How Can I Find a Buy to Let Mortgage No Early Repayment Fee?

Using an Expert BTL Mortgage Advisor

Benefits of a Buy to Let Repayment Mortgage:

  • When you reach the end of the loan term, you own the property entirely with nothing left to pay.
  • Over time, your repayments pay back more and more of the capital amount, and so you can consider remortgage options with more attractive interest rates.
  • As the capital balance reduces, so too does your interest charge, meaning that overall you pay less interest.

Downsides of Choosing a Repayment Buy to Let Mortgage:

  • Your monthly mortgage payments will be higher than for interest-only, and so you need to be able to meet higher affordability criteria.
  • Repayment BTL mortgages are usually only available through specialist lenders.
  • The total loan amounts may be smaller than you might achieve through an interest-only mortgage.

Buy to Let Mortgage Interest Only or Repayment?

The right type of mortgage for you depends on lots of variables. They include your affordability, how much deposit you have to invest, and your expectations for your investment property.

Interest-only remains popular given the lower monthly payments, which are easier to cover, mainly when the property is vacant.

However, the main disadvantage of interest-only is that you must know how you will repay the original loan when the mortgage term reaches an end. You will also find that the total interest paid on an interest-only mortgage is almost always higher than for a repayment mortgage.

Comparison: Interest-Only vs Repayment Buy to Let Mortgages

Let's consider a mortgage over 25-years to purchase an investment property costing £160,000, with a 4% interest rate.

On interest-only, the monthly payments would amount to £533.33, and the total interest payable over the term £159,999. Remember that the capital of £160,000 will also need to be repaid, making the total payments £319,999.

In comparison, a repayment mortgage under than same terms would command a monthly payment of £844.54, meaning a higher amount per month. However, the total payable, including all interest and capital, would be £253,362 over the 25-years.

 

Monthly Cost

Total Interest

Total Mortgage Cost

Interest-Only

£533.33

£159,999

£319,999

Repayment

£844.54

£93,362

£253,362

This is an example purely for illustration; to understand the rates and terms you might be offered, it is always advisable to speak with a specialist buy to let mortgage broker such as Revolution Finance to compare the best rates and deals available on the market.

Stamp Duty Charges on BTL Properties

UK property purchases incur a stamp duty charge - which is a tax based on the value of the property. In addition to the stamp duty, investors purchasing a second home must pay an additional 3% tax on any properties purchased costing over £400,000.

The below rates are accurate following the Summer Statement in July 2020 and are valid until 31st March 2021 depending on any future changes:

Property Value

Stamp Duty

Second Home Duty

Up to £500k

0%

3%

£500,001-£925,000

5%

8%

£925,001-£1,500,000

10%

13%

£1,500,001 and above

12%

15%

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Applying for a Buy to Let Mortgage Capital Repayment Basis

Every lender works to their eligibility criteria, and it can be more challenging to secure a repayment buy to let mortgage since the affordability criteria for higher monthly payments is more stringent.

Using an experienced broker is the best possible way to secure the funding you need at competitive rates. The Revolution team can guide you through the pros and cons of all the newest mortgage products on the market, to identify the best mortgage options for your property investment.

When applying, a lender will need to consider several criteria to decide whether they can extend and offer, and against what terms:

  • Your income and affordability assessment
  • Your credit rating and history
  • The type of property you wish to purchase
  • Your employment and stable income
  • Any other relevant circumstances

Finding the Most Competitive BTL Repayment Mortgage Deals 

Every investor has a different set of circumstances, but typically the most appealing mortgage deals depend on the amount of deposit that you can put forward. For example, some lenders will consider an LTV ratio of around 80-85% with others considering as high as a 90% LTV.

There are also other factors to consider when comparing mortgage deals, or deciding which lender matches well with your needs:

  • Whether there are early repayment charges in place
  • What sort of fees are payable

To secure competitive pricing and terms to meet with your plans, get in touch with our team today, and we will identify the ideal mortgage solutions for you.

What Does Top-Slicing Mean in BTL Mortgages?

Top slicing is a practice whereby your personal income is leveraged to help you borrow a higher value on a BTL mortgage.

Most lenders will look at the potential rental income from your proposed property purchase. However, others will also take into consideration your personal income, which can help make up the difference if the rental isn't quite sufficient to cover the amount you wish to borrow.

This practice generally applies to applicants earning a high income.

Some lenders will allow personal income to be considered, and others will only be able to consider rental income in the affordability assessment process. Using top-slicing allows a property investor to purchase a property with a higher loan, and still offer a lower rental income to cover the repayments.

Early Exit Charges on Buy to Let Mortgage Capital Repayment Products

Early repayment charges are incurred when you wish to repay or refinance a mortgage before the end of the term - and are common in BTL mortgages. However, working with a broker allows you the freedom to compare deals without this fee structure, giving you greater flexibility to switch lenders and take advantage of any new deals that come onto the market.

For example, if you decide to sell your investment property, or to resell following a renovation, you can do so without needing to pay fees to your mortgage lender for settling early.

Speak to Revolution Brokers about BTL mortgages with no early repayment charges for the ultimate in choice when it comes to your future property portfolio plans.

Securing a BTL Repayment Mortgage with Bad Credit History

Suffering a bad credit rating is relatively common amongst landlords, and is often caused by tenants falling behind with rent. As a BTL mortgage specialist, Revolution Brokers work with landlord across the UK to help them secure competitive mortgage lending despite their credit file.

Deciding on which mortgage is right for you depends on lots of elements, which we can discuss with you, including:

  • Your current credit score and rating
  • Any defaults or mortgage arrears on records
  • Whether you have been subject to any CCJs, IVAs or DMPs
  • Whether you have filed for bankruptcy in the past
  • Whether any previous properties have been repossessed

The length of time that has passed since is also an essential factor, and as your broker, we can negotiate with lenders on your behalf to achieve the funding you need. 

How Can I Find a Buy to Let Mortgage No Early Repayment Fee?

Exit penalties are often hidden costs that can catch investors unawares when they try to remortgage a buy to let loan onto a more competitive product.

In short, they tie you in to the lender and make it prohibitively expensive to transfer elsewhere, even if you aren't getting the best rates on the market.

If you're keen to avoid exit penalties and want a buy to let mortgage without an early repayment fee, don't hesitate to contact the Revolution Brokers team for expert advice.

Using an Expert BTL Mortgage Advisor

Entering into any long-term investment is a financial decision that is best made with professional support and expert advice.

As a whole of market broker, Revolution has access to every deal, product and lender on the market, putting us in the position to broker unique deals tailored to your borrowing requirements.

Given us a call or drop us a message today, and once we know what sort of financing you need, will get to work putting a solution in place.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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