A Guide To Buy To Let Mortgages

buy to let mortgages guide

Many people take out a mortgage to buy a home, but some buyers are looking for a property to rent out. If you’re hoping to invest in property you plan to let out, you’ll need to look for a different type of mortgage, known as a buy to let mortgage. Buy to let mortgages are designed for landlords and landladies who buy flats or houses with a view to generating income provided by tenants. If you’re looking for a property, and you’re thinking about letting it out, here’s a useful guide to buy to let mortgages.

What exactly is a buy to let mortgage?

A buy to let mortgage is a type of home loan, which is available to people who plan to buy a property and then rent it out. If you want to invest in a second home for rental purposes, or you have a portfolio of properties you let, you’ll need to apply for a buy to let mortgage, rather than a standard mortgage.

Who can take out a buy to let mortgage?

The criteria for borrowing money when you’re buying to let is often a lot stricter. To take out a buy to let mortgage, you’ll need to be able to prove that you are in a stable financial position, and you can afford to borrow more money. The requirements vary according to the lender, but typically, a buy to let mortgage will be offered to landlords or landladies who can tick these boxes:

  • You’re investing in property to generate a rental income
  • You own your own home: many lenders will only offer a buy to let mortgage to existing homeowners
  • You have a high credit score
  • You earn more than £25,000 per year and have a secure income
  • You are aged over 18 and under 75

What are the main differences between buy to let mortgages and a standard mortgage?

Essentially, buy to let mortgages are similar to standard home loans, but there are a few important differences. In most cases, the interest rates and fees are higher for buy to let mortgages, and buyers are required to put down a larger deposit. Some lenders will offer a mortgage based on a 5% deposit, but with buy to let mortgages, the minimum down-payment is usually 25% of the value of the property. Another major difference is the type of repayment. In many cases, buy to let mortgages are interest-only, which means that you pay the interest fee every month, and then clear the total capital at the end of the mortgage term.

How much can you borrow with a buy to let mortgage?

The amount you can borrow from a lender will usually depend on the projected rental income of the property. If you plan to buy a house and then rent it out, it’s always wise to try and work out how much rent you could charge before you go any further. Typically, with a buy to let mortgage, lenders ask for a rental income that is approximately 25-30% higher than the agreed mortgage payment. If you’re buying in an area that isn’t familiar to you, it’s a good idea to contact local estate agents and research the current rental market to see how much the property would fetch if you did decide to make an offer.

Different types of buy to let mortgage

Just as there are different types of mortgage available to buyers hoping to get onto or climb up the property ladder, there are also various options to consider when you’re looking for a buy to let mortgage. These include tracker, fixed, and variable mortgages. These terms apply to the rates and will determine how much you pay. With any mortgage, it’s essential to review the options open to you and to weigh up the pros and cons before you make a decision. Investing in property can be hugely lucrative, but it is always a gamble. It’s vital to make sure that you can afford to take out a buy to let mortgage before you sign any contracts or make any offers. Take your time to explore different mortgage offers, and seek expert advice. If you make the right call, you stand a much better chance of profiting from your rental property.

Are you considering buying a house or flat that you plan to let out to a tenant? If so, you’ll need to research buy to let mortgages. Although these mortgages are similar to standard home loans, there are some key differences, and it’s crucial that you’re aware of the terms of the agreement before you sign on the dotted line.

Related: Buy to let Secured Loans