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Buy-To-Let - What You Need to Know
Who Can Get a Buy-To-Let Mortgage?
A buy-to-let mortgage is for a purchaser who is buying with the intent to let the property out. It is important to understand that there are risks when investing in property; for instance, there may be times when no one is renting, or a tenant falls behind in rent. Typically to be accepted for a buy-to-let mortgage you have to fit a certain criterion.
Lenders tend to favour those in the 45-50 age range – however it is still obtainable if you are younger. It is important to ensure that your credit rating is correct and a good score and that you are on a salary of £25,000+ per year. Lenders will look into your credit report to ensure that you can afford the buy-to-let mortgage and can afford the monthly mortgage payments.
How Do Buy-To-Let Mortgages Work?
Buy-to-let mortgages typically work the same as standard mortgages in terms of mortgage repayments, but there are some key differences to bear in mind.
When it comes to buy-to-let mortgages the fees and interest rates tend to be higher. You will also have to pay a bigger deposit; lenders sometimes ask for up to 25% of the property value as an initial deposit. Buy-to-let mortgages are often ‘interest only’ meaning that your monthly payment does not pay the capital amount. This is paid ‘in full’ at the end of the term.
In general buy-to-let mortgages are not regulated by the Financial Conduct Authority. This is not the case however in regards to consumer buy-to-let mortgages, which are properties bought for friends or family.
It is important to have as much knowledge as possible before applying for a buy-to-let mortgage, which is why help from a mortgage broker if you aren’t sure on where to start can go a long way.
How Much Can You Borrow on a Buy-To-Let Mortgage?
To determine the borrowing amount on a potential buy-to-let mortgage, you will have to do some thorough research into the property, the area, and your investment opportunity.
Typically, a buy-to-let lender will need your estimations for rental income. The rental income on a buy-to-let property is directly linked to how much you can borrow. Lenders will only accept a rental price that is 25-30% higher than your mortgage payment.
You will need to find out the typical rental amounts for the area where your property is located, and for properties like the one you are investing in. Talk to local estate agents and keep an eye on the market.
Where Can You Get a Buy-To-Let Mortgage From?
Most major banks and mortgage lenders will offer buy-to-let mortgages for qualifying candidates. It is worth mentioning that banks tend to offer higher rates than other lenders.
While most major financial institutions will offer buy-to-let mortgages, the terms vary widely. Different lenders apply different fees and may be more or less willing to accept certain applications.
How Can a Mortgage Broker Help?
When taking on the responsibility of a buy-to-let mortgage, there are many things to consider. You cannot rely that rent will always be an incoming for instance or rental properties could be vacant at times. You will need to ensure you have an amount of money in reserve in case this occurs.
Furthermore, you should not make a mistake and assume that selling the property will pay-off the mortgage as the property might fall in price.
A mortgage broker can help as they will take into account your personal situations whilst giving an overview and their knowledge of the mortgage market. It is always worth seeking advice from an expert if you are not sure on anything as it is a huge financial responsibility.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Some By to Let mortgages are not regulated by the Financial Conduct Authority