A Guide to Buy-to-Let Mortgages
What is a buy-to-let mortgage?
Buy-to-let mortgages are for landlords who want to buy property to rent it out. The amount you can borrow on a buy to let mortgage is mainly based on the monthly rental you are getting or are likely to get.
Buy-to-let is a property which is purchased to let out in order to produce a rental return and income stream. It can also grow in value, producing capital gain when you sell.
What is different about a buy-to-let mortgage?
If you plan to rent out your home, you need a buy-to-let mortgage. There are some key differences between buy-to-let and ordinary mortgages that could potentially make it more difficult to buy a property for rental purposes.
Mortgage providers see buy-to-let mortgages as higher risk than residential mortgages. This is because landlords often face problems with rent collection, and it is unlikely that your property will constantly be occupied.
Buy-to-let mortgages often have slightly higher fees and interest rates associated with them compared to residential mortgages to reflect the higher risk for a lender. The minimum deposit for a buy-to-let mortgages also tends to be higher compared to normal residential mortgages.
Deposit
Buy-to-let mortgages typically require a minimum deposit of 20-25%. The larger your deposit, the greater the range of mortgage products you can choose from and usually the cheaper the rate lenders charge.
Rental income
Lenders will typically need the rental income to be at least 125% of the monthly mortgage payments (on an interest only basis), or even up to 145%, depending on a lender’s criteria.
In order to secure a buy-to-let mortgage, you’ll typically need to receive a monthly rental income of 25-45% more than your monthly mortgage repayments.
Buy-to-let mortgages for first-time buyers
If you’re struggling to get on to the property ladder in your area, you might be considering buying an investment property elsewhere and letting it out.
The good news is that it is possible to get a buy-to-let mortgage as a first-time buyer – but it’s not necessarily easy.
As you might need a bigger deposit than other investors to get a good deal and the number of mortgages available to you may be significantly smaller.
Accidental landlords
Accidental landlords are those who didn’t buy a property with the intention of letting it out, but who have since ended up doing so due to circumstance rather than choice. Not everyone who becomes a landlord necessarily sets out to do so. For example, you might have inherited a property, or relocating at short notice and choosing to let out your home.
Regardless of how you’ve become a landlord, it’s important that you tell your mortgage lender if you’re going to let out a home that has a residential mortgage. Some lenders will grant you a ‘consent to let’ on your current deal, while others may insist on you switching to a buy-to-let mortgage.
Whether you are investing in buy-to-let properties for the rental income or for the potential capital appreciation, choosing the right mortgage is essential. Applying for a buy to let mortgage is a fairly similar process to a residential mortgage application.
SN Mortgage Solutions are independent mortgage brokers working with a wide range of lenders who can advice on the entire process and provide quality advice.
Kindly contact us on 07551418599 or email us at sujatha@snmortgagesolutions.co.uk to book your free mortgage review.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.