What is a buy to let mortgage?
When you buy a property as an investment, they must be purchased using a buy to let mortgage. These specialist types of mortgages are different to a normal residential mortgage. They are sold specifically to people who buy property as an investment, rather than as a place to live. So, if you’re planning to rent out a new property, most lenders will prefer to see a buy to let mortgage agreed not residential.
How does a buy to let mortgage work?
Most buy-to-let mortgages are provided on an interest-only basis. This means for each month of the mortgage term, you’ll only pay the interest on the loan, and not the capital. Although this can be good financially in the short term, it’s important to have a plan in place. This plan should be to either pay off the loan in full or refinance at the end of your mortgage term.
Do I still need a deposit?
Yes, a deposit is still required for buy to let properties. To get a mortgage on an investment property, you’ll usually need a deposit of at least 20-25% of the value of the home. And, as with standard residential mortgages, the bigger the deposit you put down, the better the rate you’ll get. The best buy-to-let deals are usually only available to investors with deposits of 40% and above. The maximum you can borrow is linked to the amount of rental income you expect to receive. When assessing your affordability, lenders will consider your current portfolio and any previous loan history.
Affordability rules for landlords
There lots of enticing mortgage offers out there for landlords, but you’ll need to prepare yourself for strict affordability tests. That’s because in recent years, the Bank of England has imposed tougher lending restrictions. It’s a good idea to talk to a mortgage broker before you take out a buy-to-let mortgage, as they will help you choose the most suitable deal for you.
If you’re a landlord looking for property management support then get in touch with us today.
