BTL, LTB, HMO & holiday let terms explained

The mortgage world can seem a very confusing – even daunting – place.

Understanding the different types of mortgages that are out there means you are better equipped to make the right decisions.

BTL

Buy-to-Let mortgages is where you are purposefully purchasing a property to rent out. This is often with a view to making a profit and are mainly provided on an interest-only basis. In other words, you only need to pay off the interest on the mortgage each month and not the capital. However, at the end of your mortgage term, you will need to be able to pay the loan off completely or refinance.    

LTB

Otherwise known as Let-to-Buys, these types of mortgages come into play when a residential property is changed to a buy-to-let property. Here, the existing mortgage needs to be changed to a buy-to-let mortgage and you’ll need to secure a new residential mortgage on the new property – the one you’ll be living in.

You are unable to live in a property which has a buy-to-let mortgage and you are also unable to rent out a property which has a residential mortgage against it without gaining prior consent from the lender.

If you are considering purchasing and thinking of using a let-to-buy mortgage, prepare for a more complicated procedure. They are not as straightforward as the residential mortgage, for example.

HMO

When it comes to HMOs or House in Multiple Occupation properties, things get even more complex. Firstly, there are regulations that define what HMOs are. The government’s definition is that they are properties which have been rented out by at least three people, all unrelated, who share facilities such as a kitchen and bathroom, yet don’t make up a single household.

However, it doesn’t stop here. HMOs that are occupied by five or more people or that comprise three stories, are likely to be considered a large house in multiple occupation by many lenders; and some aren’t happy about offering mortgages on these at all.

If you are thinking of becoming an HMO landlord, there are specialist lenders around who may be prepared to offer you a buy-to-let mortgage. With strict lending criteria generally set for these types of properties, factors such as: the number of rooms; your own HMO landlord experience; and whether or not the property will require a license (some do), could all feature in the decision-making process.

The property value and the more regular criteria based around the applicant can also play their part in swaying a lender, one way or the other. Things like age, location and credit history, for example.

If you’d like more information, in this complex area, please do get in touch.

Holiday Lets  

Here, we are referring to mortgages that are taken out to buy holiday homes.

You’ll need to know a few important things when it comes to these types of mortgages.

The first is that a Buy-to-Let mortgage won’t necessarily do the job. It’s important that you opt in to the right product so that you can be sure you are not in breach of any terms and conditions.

Also, Holiday Lets are somewhat niche, so it’s worth bearing in mind that you may have less choice than if you were taking out a ‘regular’ mortgage.

Neither last nor least, different tax rules apply to monies earned from renting properties that fall under the furnished holiday lettings header.

For more information on any of the above, please do get in touch. We’re always happy to help.

September 2019