About Us | Our Approach | Testimonials | Our Blog | Contact Us
About Us | Our Approach | Testimonials | Our Blog | Contact Us
Buy-to-let mortgages let landlords borrow money specifically to buy a property for the purpose of renting it out. They work just like a normal mortgage, but lenders take the potential rental income into account when deciding how much money they are happy to lend.
Buying a property to rent out can be an excellent way to generate an income for the present and invest for the future. But if you cannot afford to buy outright, you will need a buy-to-let mortgage rather than a conventional mortgage.
They work in the same way as standard mortgages, although rates are higher, typically by around 1% or 1.5%, as there is a greater risk to the lender. This is because landlords usually rely on rent from their tenants to cover their mortgage costs and if there is a long period when they do not have a tenant, usually known as a 'void' period, there is a risk of them defaulting on the mortgage.
You also usually have to put down a bigger deposit than you would have to with a standard mortgage, typically around 25%, whereas if you were buying a home to live in, you can put down as little as 5%.
However, never be tempted to opt for a standard mortgage and then rent the property out, as you will effectively be committing mortgage fraud. If the lender finds out they could withdraw any special rate you might have been on, change the terms and conditions of your mortgage or even refuse to continue lending to you.
You are unlikely to be offered a buy-to-let mortgage unless you already own your own home, and some lenders also have a minimum income requirement, so you may struggle to get one if you earn less than around £25,000 a year.
With standard mortgages, the amount you can borrow is linked to your income, so you can usually borrow around three times' your salary, although this will vary depending on which lender you go to.
But on top of this, when you take out a buy-to-let mortgage, the amount you can borrow is also linked to the level of rent your property is likely to generate. Usually the rental income must equate to a sum that is between 25% and 30% higher than your monthly mortgage repayments. This is calculated on an interest-only basis however which is how buy-to-let mortgages tend to be offered.
If you are not certain what sort of rent any property you are interested in might generate, contact lettings agents in the area and ask how much you might be able to charge. It is also worth scouring local property websites and newspapers to give you an idea of the sort of rents similar properties command.
