Getting started guide

Could I apply for a Buy to Let?

You could apply for a Buy to Let mortgage if:

• you are at least 21 years old;
• you won't be over 80 years old at the end of your mortgage term;
• if you are a first time buyer, you are not applying in your name only;
• at least one applicant is a UK property owner at the moment (main residence or another buy to let property);
• you’ll need a deposit of at least 25%, but you may need more dependent on the deals we have available;
• the property is being used for rental purposes, and is self-funding (the rent needs to be higher than the mortgage payment);
• the property is in good condition and not divided into separate units; and
• the property has a Minimum Energy Performance Certificate Rating ‘E’ or above, unless it's exempt from the regulation
• the value of the property is £50,000 or more.
• You do not have more than 10 buy-to-let mortgaged properties in total with any lender (including this application).

How much could I borrow?

You can hold a maximum of ten mortgages or borrow up to £5 million across the Lloyds Banking Group. This includes the following brands: Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, Scottish Widows Bank, Intelligent Finance and The Mortgage Business (TMB).

The maximum loan size on a single Buy to Let property is £1 million.

The most you could borrow is linked to the amount of rental income our surveyor thinks you could earn. The annual rental income must equate to a minimum of 125% of the annual (interest only) mortgage payments based on the higher of a notional interest rate or the initial rate +2% for the mortgage deal.

In some cases we’ll also look at your personal income, and may take into consideration the additional cost of an increased tax liability for some customers as a result of changes in tax legislation. These changes will be fully implemented by 2020 and, as a responsible lender, we must consider how they might affect the future sustainability of your borrowing.

What could my interest rate be?

We have a range of Buy to Let offers, see our current rates to get an idea of what we could offer you.

Other important things to consider

Buy to Let mortgages are non-regulated

Buy to Let mortgages are not regulated, unlike residential mortgages. This means that although our Mortgage and Protection Advisers are here to help you every step of the way with your Buy to Let, they can't give you advice on the most suitable mortgage.

You'll need to be happy to make your own choices about your Buy to Let mortgage.

Understand all of the costs

Take time to understand the costs involved in buying, running and maintaining your Buy to Let property.

Purchase costs

1. Deposit – you’ll need a deposit of at least 25%, but you may need more dependent on the deals we have available.
2. Mortgage fees – This will depend on the mortgage product, there may be a product fee to pay and early repayment charges if you repay early. You'll need to check our current rates for full details.
   
   Any product fees can be added on to your mortgage on completion. There could be other charges and standard costs that you may have to pay during the life of your mortgage.
   
   You'll be charged interest on any fees, charges and standard costs added to your loan.
3. Stamp duty – check whether you need to pay Stamp Duty on your purchase. See GOV.UK for Stamp Duty information.

Taxation

1. Income Tax – you will have to declare rental income on your tax return so you should keep a record of rental payments received and any associated expenditure for the rental property. As a result of tax legislation that started to come into effect in 2017 and be fully implemented by 2020, finance costs will not be tax deductible but tax relief can be claimed at the basic rate. We can't offer tax advice and you should refer to an accountant who will be able to make sure that HMRC are properly advised and all allowable expenses and allowances are correctly identified.
2. Capital gains tax – if and when you decide to sell your Buy to Let property, the proceeds from the sale will be subject to capital gains tax. Calculating this tax liability can be quite complicated and it’s worth getting the expert advice of a qualified accountant. Visit the HM Revenue & Customs website for further information on taxation and allowances.

Running Costs

Here are the main day-to-day running costs you’ll need to take into consideration. It’s important to remember that you are responsible for making the monthly mortgage payments, even when the property does not have a tenant.

• Mortgage – if interest rates rise, your monthly payment could too
• Property maintenance – repairs, gas and electricity safety checks
• Insurance – specialist buildings and contents insurance for landlords
• Service charges and ground rents (for leasehold properties);
• Tenancy agreement and letting agent fees.

You’re ready to start viewing properties

You’ll find it helpful to have an Agreement in Principle (AIP).

If approved you’ll be given an indication of how much you could borrow. Most estate agents need to see this to show that you’re a serious buyer. There’s no charge for this, and no obligation to apply for your mortgage with us. To apply for your Agreement in Principle, you’ll need an appointment with one of our Mortgage and Protection Advisers. You can choose to have your appointment in branch or over the phone.

Call us

What you’ll need for your appointment

• Details of the property or type of property you are interested in buying.
• Your assessment of the rental income the property should be able to generate. Examples of rents for similar properties in the area should support this.
• Details of your income.

What should I consider when choosing which property to buy?

Tenants - think carefully about the type of tenant you want to attract, e.g. young professionals, families or sharers. Considering this may help you to decide on the type of property you purchase and its location. The property should be let on a single assured shorthold tenancy (in England and Wales), a short assured tenancy (in Scotland) or a private tenancy (in Northern Ireland). 

A maximum tenancy of 3 years is acceptable when the tenancy is in the form of a Department for Communities and Local Government (DCLG) model agreement of September 2014 (or as amended) or the Scottish equivalent or such other replacement tenancies as may be prescribed by legislation from time to time.

Location - do your research and visit lots of different areas. Location is an important consideration and will often determine the type of tenant you will let to. Don’t necessarily buy locally to your home. Think about prosperous towns that might attract a higher demand for rental property. Once you've chosen an area consider the locality, think about transport links, parking, shops, schools and other local facilities - pick the brains of letting agents for information about areas where properties may be easier to rent.

Condition of the property - if you're buying a property that needs improvements, restrictions could be placed on the amount you can borrow and it could also delay how quickly you can let the property out. Can you afford the mortgage payments during the renovation period?

Rental income - do your homework, talk to local letting agents, check the local press to find out comparable rental values. The mortgage valuation will include an estimate of the rental income of the property on an unfurnished basis. But remember, there are no guarantees of what rental income you'll get or if the property will rise in value over time.

You’ve put an offer on a property and it's been accepted

You can start your full application over the phone or in branch - you'll need the following:

• Address details for the last 3 years
• Employment and income details for the last 18 months
• Any outstanding financial commitments
• Evidence of possible rental income (e.g. monthly rental charge on similar properties)
• Last 3 months bank statements
• Proof of bonus / commission
• Your last P60
• Proof of ID – passport / utility bill
• SA302 tax return forms if you are self employed.

You can talk to us over the phone or in branch by calling us.

Your obligations as a landlord

Tenancy agreements

A tenancy agreement is a contract between the landlord and tenant. It is most likely to be an Assured Shorthold Tenancy agreement (AST), which is regulated by the Housing Act 1988, and provides limited security of tenure to the tenant. Although the content of tenancy agreements varies, they should include the following clauses:

• Details of the parties involved
• The date that the tenancy began
• The duration of the tenancy
• Details of the initial deposit that the tenant should pay and how it is to be protected
• Details of the monthly rent, when it is due and how it is to be paid
• The length of notice that the tenant and landlord need to give to end the tenancy
• Details of the tenant's obligations while renting the property
• A provision confirming that the tenant is not liable for fair wear and tear to the property.

The tenancy agreement should be signed by the tenant and the letting agent, or the landlord if no agent is involved. It can be changed after if both parties agree. We recommend you seek advice from a letting agent or independent legal advice on the terms of the proposed tenancy agreement.

Tenancy Deposits

Initial deposits cover you against missing items or any damage caused by the tenant.

Deposit Protection Schemes

Tenancy Deposit Protection (TDP) schemes guarantee that tenants will get their deposit back at the end of the tenancy. However they must meet the terms of the tenancy agreement and must not damage the property.

Landlords must protect their tenants' deposits if they have let the property on an Assured Short-hold Tenancy that started after 6 April 2007. However it’s good practice for landlords to protect deposits in all circumstances. TDP schemes do not cover holding deposits.

Landlords who don’t protect their tenants' deposits when required to can be taken to court by the tenant. They may need to repay the deposit plus a sum equivalent to three times the deposit. The landlord may also be unable to seek possession of their property.

Approved Schemes

There are three TDP schemes approved by the UK Government:

Deposit Protection Service (DPS)

My Deposits

Tenancy Deposit Scheme (TDS)

Types of Scheme

There are two types of TDP scheme:

• Custodial - the DPS offers the only custodial scheme. It holds the deposit in a bank account and returns it at the end of the tenancy to the person who is entitled to it. This scheme is free to landlords and letting agents.
• Insurance based - where the landlord or landlord's agent holds the tenant's deposit and pays a fee to insure it against landlord default. My Deposits and TDS are insurance based providers.

Landlord Insurance

Landlord Insurance is a specialist policy that covers landlords against a range of eventualities. It includes cover for the building and any contents that belong to the landlord, loss of rent and accidental damage.

These policies often provide legal cover that protects landlords against large compensation claims arising from an injury to somebody that is caused by a fault in their property.

Be aware that standard home insurance policies do not normally provide cover for rented out properties. Make sure your tenants are aware they are responsible for insuring their own personal possessions.

Find out more about Landlord Insurance
 

Landlord repair and maintenance obligations

The Landlord and Tenant Act 1985 covers the three main areas of responsibility which landlords have under an Assured Short-hold Tenancy (AST).

Repair

Landlords must keep the structure and exterior of the property in a good state of repair. You are responsible for making sure that the property is safe, fit for use and in a fair condition.

Gas and Electrical Safety

Landlords are responsible for the safety of gas installations and appliances. You'll need to have a yearly safety check and keep proper records of the checks. There are also regulations covering the safety of electrical installations and appliances. Though not currently compulsory in all properties, it makes good sense to fit carbon monoxide and smoke detectors in all let properties. Landlords must make sure they are aware of any changes to relevant legislation.

Fire Safety of Furnishings

You must be able to verify that any soft furnishings and fittings you provide adhere to the relevant standards. Make sure you seek independent advice on your responsibilities.

Ending a tenancy

At the end of an Assured Short-hold Tenancy (AST), as a landlord you have an automatic right to possession of the property, as long as you have given the tenant two months’ notice to vacate the property.

If the notice period expires and the tenant has still not left the property, you'll need to start the process of eviction through the courts. You must not forcibly remove the tenant without an eviction order.

Landlords seeking possession under an AST because the tenant has not paid the rent, or broken other terms of the agreement, will need to use one of the reasons or 'grounds' for possession specified in the Housing Act 1988.

Getting your property ready to rent

1. Choosing an agent - If you decide to use a letting agent, make sure they are a qualified member of one of the trade’s professional bodies – the Association of Residential Letting Agents, the National Landlords Association or the National Association for Estate Agents. All of these bodies have Codes of Practice which set the standard of service the agent should provide.
2. Completing an inventory - The agent will carry out a full inventory of the property before it is let, they may charge for this. The condition of the property and its contents will all be recorded, you and your tenant will need to sign to agree that this is a reflective inventory. If you choose not to use an agent, you should arrange for an inventory to be completed.
3. Property presentation - Check if any repairs are needed. Decoration and carpet cleaning should also be a consideration to make sure your property is appealing to tenants.