Buy to let mortgages are for landlords who purchase properties to rent out to tenants. Although these differ from regular mortgages, there are some stark differences that set them apart completely.
Who can get a buy to let mortgage?
Investing in houses or apartments is the main reason why someone would consider a buy to let mortgage, although this does come with slight risk and you should definitely not take out a buy to let mortgage without conducting thorough research beforehand. Carrying out thorough due diligence will help to mitigate any risk and leave you well equipped to deal with any unforeseen circumstances should they arise.
In order to successfully obtain a buy to let mortgage, you must ensure you have a good credit rating. This includes not overstretching yourself on other borrowings, no outstanding debts and little to no missed payments in your other direct debits. Existing mortgages on your main residency will affect your likelihood to secure a buy to let mortgage, as well as any credit card loans you may have built up over previous years.
Most lenders require a regular income of £25,000 per year or more. Any less than this, and you may struggle getting your lender to approve your buy to let mortgage. Income isn’t the only factor that lenders look at before lending cash, as age is also a contributing factor. Some lenders have upper age limits, typically between 70 and 75 which refers to the oldest you can be when the mortgage ends, not starts. To put this into context, if you are 50 and enter a 35-year mortgage, it will finish when you are 85. Some lenders do not except this so make sure you do your research.
What are the key difference of buy to let mortgages compared to standard mortgages?
There are several differences to the main features of a buy to let mortgage and your usual residential mortgage. Instead of a mortgage loan being solely dependant on the earnings of an individual as is the case in residential mortgages, in buy to let it very much depends on the potential for rental income of a property. Usually, a typical ask is that the rental income of a property is 25-30% higher than a standard monthly mortgage payment. Investors will have to prove that the property has the potential to earn this amount to cover the total mortgage costs.
Arrangement fees and interest rates can often be higher too as buy to let mortgages are considered a business transaction that involves slightly higher risk. Particularly within off plan property investments, this type of asset involves brand new apartments that are before construction phase, like those marketed by RW Invest property investment specialists. Despite containing a diverse range of strong draws to the developments such as affordability, sleek designs, and modern furnishings, mortgage developments still see this type of investment as a little riskier than residential mortgages.
Usually the maximum that can be borrowed is around 75-80% with a required deposit of around 25% usually. This differs significantly from the minimum of 5% that can often be found in traditional mortgages. However, the more deposit put down will help you to acquire the best mortgage rates.