How to finance a buy-to-let

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    How to finance a buy-to-let

    Buy-to-let mortgages

    Buy-to-let mortgages are generally easier to obtain than residential mortgages and you can usually borrow up to 75% of the property’s value – sometimes even more.

    Re-mortgage your home

    If you have some equity in your home, you could re-mortgage it to borrow enough to raise the deposit or the entire purchase price of a buy-to-let property. However, some residential mortgage lenders, such as Nationwide, don’t allow additional borrowing to fund BTL purchases.

    Remember that you can claim a tax credit for any interest payments on loans taken out to buy a rental property, even loans that are secured on your home.

    Bridging loans

    These are a very expensive but can be useful for short-term loans, say if you are buying a property at auction or intending to sell another property but the sale hasn’t gone through by the time you want to buy. Read more on dedicated bridging loans page.

    Use your pension pot

    If you have been investing into a private pension plan, you can withdraw the cash to spend on anything you like, including a rental property, from the age of 55. You can usually take as much or as little of your pension pot as you like and the first 25% will be tax-free. You’ll pay tax at your normal rate of income tax on the remainder. Before you consider this option, it’s best to take financial advice as there will obviously be implications for your retirement income.

    Borrow from friends and family

    If you don’t mind mixing business with pleasure, it might be worth asking friends and family if they want to enter in to a joint venture on a buy-to-let property, or simply lend you the money. This could work well if you intend to add value to a property, so you can re-mortgage it for more than you paid and release enough equity to repay them within a relatively short period. Note, however, that you it is hard to re-mortgage a property within less than six months of the purchase.

    When taking out any form of finance, it is always best to seek independent financial advice.

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