For the most part, buy-to-let mortgages are very similar to conventional mortgages. There are, however, also several key differences that must be taken into account, including but not limited to the following:
The key to accessing the best buy-to-let mortgage lies in obtaining independent expert advice at the earliest possible stage. Whether this is your first buy-to-let mortgage or you are looking to expand existing portfolio, speak to an established broker to gain important insights into the available options.
A “Buy to Let” is when a residential property is purchased with a view to renting it out as a form of investment. Buy to Let mortgages are specifically designed for purchasing this type of investment property.
Instead of the loan amount being based on income and outgoings, a Buy to Let mortgage is based on how much rent the property can generate, its therefore deemed to be generating its own income to repay the mortgage.
It is, however, expected that a borrower will provide details of both income and the potential rent of the Buy to Let property, personal income of GBP £25,000 is usually required, (however certain lenders accept GBP £20,000 and some do not ask for confirmation of income).
A minimum 15% deposit is currently required, although a larger deposit will secure a better interest rate. An 85% Loan to Value (the size of the loan compared with the value of the property) mortgage is required. For eg :
Property valuation – GBP £100,000
Minimum deposit – GBP £15,000
Mortgage required – GBP £85,000
You will see above the loan amount is 85% of the property valuation, so the mortgage is classed as being at 85% Loan to Value or LTV.
Lenders will require that the rent generated by the property be at least 25% more than your monthly mortgage repayments. For eg if your mortgage repayments are £800 per month then you need to charge at least £1000 rent per month. The potential rental amount is the primary driver in determining the amount of money that can be borrowed.
NB. In the above scenario when the lender is calculating 25% of the monthly mortgage repayments they are currently applying a higher interest rate than the actual rate the borrower has secured. This is due to mortgage rates being historically low, lenders are taking this approach to protect themselves and the borrower against a possible increase in interest rates. Lenders are using a rate of commonly 5%. The result being the rental income will cover any potential increase in rates.
Since mass introduction during the mid 90’s many investors have entered the Buy to Let market not just for the rental income but also to benefit from long term increases in property prices and importantly as a purchase which could eventually be sold and used for a future pension. Numerous investors have become multi-property owners.
A well used strategy for investors to increase their property portfolio is to remortgage once the Buy to Let property has increased in value. Cash is then released (see our page on Equity Release for more information) which could be used as a deposit for further Buy to Let purchases i.e.
Property valuation – GBP 100,000
Current mortgage – GBP 50,000
New mortgage/remortgage – GBP 75,000 (GBP 50,000 would be used to repay the old mortgage and GBP 25,000 is raised to use as a deposit or deposits for future purchases)
At UK Property Finance we have been involved with Buy to Let mortgage lenders from the very beginning and have a huge amount of experience and contacts in this field.
*It is considered fraudulent to obtain a standard mortgage for a property you purchase with the intent of renting out.