Buy-To-Let Mortgages Explained
What is a buy-to-let mortgage?
A buy-to-let mortgage is for people who want to purchase a property as an investment in order to let it out to tenants. As you will not be living in the property, you wouldn't be able to purchase it on a standard residential mortgage.
What deposit do I need for a buy-to-let purchase?
Most lenders will require a minimum deposit of 25% however, the number of lenders offering products with a 20% deposit has grown in recent times but be aware as interest rate may rise in this scenario.
Interest Only or Repayment?
Most landlords especially those with one or more buy-to-let properties use interest only mortgages as their preferred option to finance their investments.
This can seem strange as you would ask why wouldn't you want to pay down the debt each month?
With buy-to-lets, the rental income will cover the mortgage payments and if this is on an interest only basis, the monthly payments will lower, meaning more return each month!
The mind set of most landlords is to sell the property at the end of the mortgage term, with the likely event of it rising in value.
Most lenders allow over payments to be made each year up to 10% of the outstanding debt so this can act as a way of paying down the mortgage which is a favourable incentive to have.
How much can I borrow?
With a residential mortgage the amount you can borrow is based on your income and your commitments, with buy-to-let it works differently however, those aspects are still considered.
The gross income the buy-to-let property makes each month is key to how much you can borrow; each lender has a different rental stress calculation that considers the rental income and the tax position of the client.
Many lenders do not require a minimum income and in many cases if a provable income is received the buy-to-let application will be considered.
Not all Buy-To-Let Mortgages are regulated by the Financial Conduct Authority
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