Finding 15% deposit Buy to Let mortgages or 85% LTV [loan to value] mortgages can be tricky. As a general rule of thumb most lenders will require you to have a 25% deposit as a minimum. However all is not lost as there is one lender:
Typical Interest Rate: 5-6%
Should you save for a larger deposit?
If you could save an extra 5% deposit and therefore have a 20% deposit, you immediately have far more lending options available to you. Lenders offering 20% deposit mortgages include:
- The Mortgage Works [BTL arm of Nationwide Building Society]
- Virgin Money
The interest rates associated with 80% LTV mortgages are lower compared to 85% LTV mortgages. This means that monthly mortgage repayments will be less, saving you money over the long term.
Criteria for 15% Deposit Buy to Let Mortgages
Lenders are thin on the ground, interest rates are higher and criteria is slightly tougher – but it’s still ‘do-able’!
Lenders will require that the rental income from the property covers 140% of the mortgage repayments.
For example if the mortgage is £1000 per month, the lender will usually want to see a rental income of £1400 per month.
The rental coverage for HMO’s is higher again, at around 175%. So using the same £1000 per month mortgage repayment example, the HMO property would need to have a rental income of £1750 per month, to satisfy most lenders.
Interest Rate Income Stress Test
Interest rates are at historical lows in the UK, so what happens if they go up? Well, lenders will want to see that the mortgage repayments can still be met.
To see what happens to mortgage repayments if rates rise by 3% use our mortgage repayment calculator
Lenders could stress test you above and beyond an interest rate of 5%, so do the maths before to check for yourself.
Buy-to-Let Portfolio Review
If you already own existing buy-to-let properties, expect to have your whole portfolio reviewed. Lenders no longer accept equity spread across your portfolio and will typically now assess risk on an individual property basis. Meaning you could find your application unsuccessful for a mortgage if you have a property within your portfolio that’s unprofitable – beware.
Eligibility for 15% Deposit Buy to Let Mortgages
Securing lower deposit mortgages will depend on your personal circumstances, the lender will take the following into consideration:
Lenders see 15% deposit mortgages as higher risk than 20-25% deposit mortgages. As such your credit rating could play a deciding factor, so ensure than its top notch before applying. Having a poor credit rating doesn’t necessarily mean you won’t be accepted but it could mean a higher interest rate or mean they ask you for a larger deposit than 15%, but possibly only 5% more.
If you are an existing landlord you will know that this should be a helping factor when being reviewed by a lender. Over 12 months landlord experience is favoured by most lenders.
Older property investors are generally seen by all lenders as a higher risk than younger ones.
Brokers for Low Deposit Mortgages
Is there any advantage to using a broker, versus applying directly?
There could be if you use a broker that has specific BTL mortgage experience and can search the whole market for a low deposit deal.
A broker will also handle all of the paperwork for the mortgage and it’s also possible they will do all that for free, being paid directly by the lender – instead of you having to pay them.
Online mortgage brokers like Trussle or Habito could help you, check them out.