Whether you’re just entering the buy to let world or whether you’re a seasoned investor, how do buy to let mortgages work?
How buy-to-let Mortgages work
In many ways a buy-to-let mortgage is similar to a residential mortgage. Having a larger deposit will give you a better chance of securing the best deals and just like their residential counter-parts monthly repayments will need to be made; whether this be repayment or interest only. There are some main differences though.
Who can get a buy-to-let mortgage?
Buy-to-let mortgages are available to both new and existing landlords, but this will vary between lenders. Generally, you’ll be expected to meet the following criteria:
- Earn a minimum of £20,000 per annum (There area small number of lenders who can offer no minimum income. You will find that it can be a harder process)
- Have a deposit of somewhere between 25% and 40%of the purchase price (some deals might go as low as 20%)
- Already be a homeowner.
- Be under a certain age when you apply (often not being past 70 or 75 when your mortgage is due to end)
- Be in a comfortable enough financial position to allow you to take the risk to invest in property.
How much can I borrow using a buy-to-let mortgage?
Lenders will base how much they are willing to lend on the level of rental income your buy-to-let property is expected to deliver. Quite simply, will the rental yield comfortably cover the mortgage repayments?
Your lender may also request a letter from an estate agent confirming what your rental income will look like based on comparable properties within the area.
Things to consider before taking out a buy-to-let mortgage
If you want to become a landlord, then there a few things to carefully consider.
What if there is no rental income? Being a landlord is unpredictable. Tenants will come and go, but your mortgage repayments will still be there. This is why many landlords put their rental income into savings accounts to cover that shortfall of having a vacant property.
Also, you will find that many landlords have their mortgage on an interest only mortgage. This is so the monthly payments aren’t as high as a repayment, but most lenders will offer you the facility of over paying by 10% of the borrowed amount per annum.
At the end of your buy to let mortgage term, you will have to look at a repayment vehicle to pay your lender back if you were on interest only. Whether that be you paying the lump sum from savings, your pension, selling the property or any combination of the above, you need to consider what this looks like from the get-go.
We are more than happy to talk you through the process and answer any questions you may have.
