How to get a buy to let mortgage in principle

Categories: buy to let mortgages | guides | buy to let mortgage guides

If you want to invest in property and you do not have the cash to buy one outright, a buy to let mortgage is the financial product you will need.

It is a loan, secured against the property you are buying, or remortgaging if you already own the property.

The first step in getting a buy to let mortgage lender to loan you money, to help you buy a property, is to secure a document from one that goes by a few different names:

• Buy to let mortgage in principle (MIP)
• Buy to let mortgage agreement in principle (AIP)
• Buy to let decision in principle (DIP) 

They all mean the same thing.

This guide walks you through the steps involved and will steer you on the most efficient ways to progress your property investment plans.

Understanding the MIP/AIP/DIP

A buy to let mortgage in principle is essentially a preliminary approval from a lender, indicating their willingness to offer you a mortgage, subject to certain conditions. 

This document provides an estimate of the amount you can borrow, which helps you gauge your budget and strengthens your position when negotiating with sellers.

The mechanics of a Mortgage in Principle (MIP)

An MIP is not a legally binding contract but rather an indication of the lender's intent to offer you a loan, based on an initial assessment of your financial situation and the property you are securing the borrowing against. 

To obtain an MIP, you typically need to provide the lender with basic personal and financial information, such as your income, employment status, and credit history. Most lenders will conduct a soft credit check, which does not impact your credit score but some will undertake a hard credit search which will impact it.

Once the lender evaluates your information, they will issue a MIP that specifies the maximum loan amount they are willing to offer. This allows you to focus your property search within an appropriate price range, saving you time and effort.

The importance of a buy to let mortgage in principle

There are three key reasons why getting a MIP can help existing or prospective landlords with their property investment plans:

Enhanced credibility with sellers

Having a MIP can significantly bolster your credibility in the eyes of sellers and estate agents. It demonstrates that you are a serious buyer, with the financial backing to proceed with a purchase. In competitive markets, this can give you an edge over other potential buyers who have not secured a MIP.

Streamlined mortgage application process

A MIP simplifies the mortgage application process by pre-emptively addressing many of the lender's concerns. It serves as a preliminary vetting that can speed up the full mortgage application once you have found a property. 

With a MIP in hand, you can proceed with greater confidence, knowing that you have already overcome one of the initial hurdles in securing financing. Be aware that a MIP is not a guarantee of lending. That comes after your case has been underwritten (checked in detail) by the lender, who reserves the right not to go ahead until underwriting is satisfied.

This is why it is so important to be accurate and truthful with all the details you give a lender at all points, you can use a mortgage broker like the team here at Commercial Trust to help you understand what sort of information will be required.

Financial clarity and planning

A buy to let mortgage in principle provides financial clarity by outlining the upper limit of your borrowing amount. This allows you to plan your investment strategy more effectively, and will help ensure that you don’t borrow more than you can afford to repay (mortgage lenders are required to assess how affordable a mortgage will be for you and will not lend you more than their affordability calculations show you can manage. 

With a clear understanding of your borrowing limits, you can make more informed decisions regarding property selection and investment returns.

Securing a buy to let mortgage in principle

There are two ways to get a buy to let mortgage in principle:

1. Approach lenders directly to ask about their products
2. Use a buy to let mortgage broker to find a product and do most of the work for you

There are around 80 lenders in the UK market place offering buy to let mortgages, so going down route 1 means you have a lot of work on your hands to ensure you get a good deal. 

Mortgage comparison tables can tell you which products are offered by various lenders, but there are a huge number of rules that each lender applies to the deals they will accept. This information is too detailed to display on a rates table, so it is almost impossible to easily establish of rates you might see, which lender is likely to take you on as an applicant.

Using a broker takes all of this off your plate. Buy to let mortgage brokers have specialist tools that help them match you to a lender, and if they are a sizable organisation they will be meeting with and talking to lender business development managers frequently to keep up to date on the latest borrowing opportunities and product updates.

Steps to getting a MIP

1. Assess your financial situation: Before attempting to get an MIP, evaluate your financial health, including your income, expenses, and existing debts. This self-assessment will help you determine your borrowing capacity and identify any potential issues that may arise during the lender's evaluation.
2. Choose the right lender: Not all lenders offer buy to let mortgages, and those that do may have varying criteria and interest rates. Research different lenders to find one that aligns with your investment goals and financial profile. A broker will do this for you, having talked to you at length to understand your needs and circumstances.
3. Submit a request for a MIP: Provide the lender with the necessary documentation, such as proof of income, identification, and details of any existing mortgage commitments. The lender will assess your application and conduct a soft credit check. Your broker team will ask you for these documents, but will complete the application for you.
4. Receive your MIP: If the lender is satisfied with your initial application, they will issue an agreement in principle, outlining the maximum loan amount they are willing to offer. Your broker will arrange all of this and can help if for any reason the lender rejects your application.

Considerations when applying for a MIP

• Impact on your credit score:While a MIP typically involves a soft credit check, multiple applications with different lenders could lead to hard searches, which may affect your credit score. Some lenders will undertake a hard credit search, ask the lender or your broker which will be the case – but also be conscious that this is an unavoidable part of the process. Be strategic in your approach and limit the number of applications you submit. A broker will hugely limit this risk, because they will make detailed checks that should mean only one application is necessary (unless the lender finds inaccuracies with your application, or more detailed checks by them mean they are unwilling to go ahead, if this is the case your broker can go to a second lender where other options exist).
• Validity period:A MIP is usually valid for a limited period, often between 3 to 6 months. Ensure that you are actively seeking a property within this timeframe to avoid the need for reapplication.
• Loan-to-Value ratio (LTV): Lenders typically require a higher deposit for buy to let mortgages compared to residential mortgages. Be prepared to provide a substantial down payment to secure a MIP, of between 15%-25% of the property value.

Challenges to look out for

Unless you work in the buy to let mortgage industry, it can be hard to anticipate the sorts of details that can affect whether you will be accepted as an applicant with a specific lender. It is not a case of one thing being good and another bad, it’s more to do with a lender’s area of specialism.

Below are a few examples of considerations lenders have when assessing your case:

Common challenges

• Credit history issues: A poor credit history can hinder your ability to secure a MIP with a number of lenders – but not all, there are some set up specifically to help you. Address any outstanding issues and consider working with one of the mortgage brokers here at Commercial Trust. We aim to match you with a lender who can help in your circumstances.
• Income requirements: Some buy to let mortgage lenders have specific income requirements for applicants of buy to let mortgages. This is because, whilst the rent is intended to cover the mortgage payment, lenders want to be sure that if there was a gap in rent for any reason (e.g. a tenant moved out) you would have a way to cover the mortgage. Not all lenders ask for this, but if you apply with one that does, ensure that your declared income meets the lender's criteria to avoid complications during the application process. Our broker team will guide you through this. If you have low earnings, there are plenty of lender options we can find for you.
• Property type and location: Some lenders may have restrictions on certain property types or locations. Verify that the property you intend to purchase aligns with the lender's policies to prevent any last-minute setbacks. This is another job our brokers will take care of for you.

Overcoming obstacles

• Work with a mortgage broker: A knowledgeable mortgage broker can assist you in navigating the complexities of the mortgage market, helping you find a lender that suits your needs and increasing your chances of securing a MIP.
• Strengthen your financial profile: Take proactive steps to improve your credit score, reduce debt, and ensure that your financial statements accurately reflect your income and assets.

Enjoy a stress-free path to getting a mortgage in principle

A buy to let agreement in principle the first step in the mortgage application process and having one can help you gain a competitive edge in the real estate market. By securing a MIP, you enhance your credibility with sellers, simplify the mortgage process, and gain financial clarity for your investment strategy.

Whilst you can attempt to find a mortgage for yourself, it will take an awful lot of work to research the 80 plus lenders in the marketplace to make sure you apply for the most cost effective outcome.

If you have a property in mind, and are ready to take the next step, why not call our broker team for free on the number above or enquire online for a call-back, and let us smooth the way for you to achieve your investment goals?