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Buy to Let Mortgages, What Are They?

Buy to Let mortgages can be a complete minefield, but they don’t have to be. In this article, we will help you understand the nature of Buy to Let Mortgages,and look at some of the aspects you must take in mind when considering these types of mortgages.

What is a Buy to Let Mortgage?

A Buy to Let mortgage is a type of mortgage that you would use to purchase an investment property that will be occupied by your tenants, while another type of mortgage, like residential, refers to a property that you would use to live yourself as your home.

The Financial Conduct Authority (FCA) regulates the residential mortgage sector. However, Buy to Let mortgages are usually unregulated.

How Does It Differ from a Normal Mortgage?

Lenders see the nature of a Buy to Let mortgage as a riskier investment than a regular mortgage or an owner-occupied property. Because of this, Buy to Let mortgages generally require a larger deposit than residential mortgages and the interest rates are typically higher. The minimum deposit for a Buy to Let mortgage is usually 25% of the property’s value. Some lenders require up to a 40% deposit.

Interest rates offered for Buy to Let mortgages are relatively similar (in nature) to owner-occupied mortgages, but are usually higher and with a higher arrangement fee. This varies a lot depending on the lender.

Brief Context

Things are a lot easier for landlords these days. It used to be that in order to buy a property to rent it out, you had to apply for a commercial mortgage, which is more expensive and difficult to arrange. Since Buy to Let mortgages appeared in the UK in the late nineties, things have definitely changed. These days, Buyto Let mortgages are available from all main mortgage lenders.

House prices have been on the rise in the past few decades. This has resulted in an explosion of the letting market as many families are faced with the reality of not affording the mortgage deposit. This has made Buy to Let a very popular and relatively safe investment option with property investors.

Is a Buy to Let Mortgage for Me?

Buy to Let mortgages are a great option for people looking to make a large investment or actively enter the rental property market. Whether it’s your first venture into property management, or you’ve been building up a portfolio of rental properties, the right Buy to Let mortgage can unleash your investment potential.

Buy to Let mortgages work differently from residential mortgages, so you should check whether you are eligible and can afford this type of mortgage.

Every Buy to Let is different. Make sure to use a mortgage calculator to determine whether you can afford repayments, do some calculations to estimate costs and rent, and make sure that you invest in an area with a demand for rental properties.

It is also essential to speak to a mortgage/remortgage advisor or a qualified mortgage broker that understands Buy to Let Mortgages. Independent Mortgage Brokers have expertise in a wide range ofproducts, such as bad credit mortgages, bad credit remortgages, Buy to Lets, etc.

How Do I Get a Buy to Let Mortgage?

If you are a homeowner, it is possible to release some equity from your home through a remortgage deal. You can then use the money as a deposit for a Buy to Let mortgage.

In order to be eligible for a Buy to Let mortgage, you must fit some specific criteria. You’ll usually need to either own your own home outright or have an existing mortgage on it. It will also be much easier if you have a good credit history and you don’t have a huge amount of existing debt.

To determine how much money you can borrow, lenders will use different methods. Some may use your income as the main factor and may also take into account the estimated rent you are likely to obtain from the property.

Other lenders will only use the rental figures in their calculations. Formulas vary, but as a general rule, lenders would expect the rent to be 125% of the mortgage payment as a minimum. Thus, making sure that the rent paid by the tenant covers the mortgage payment sufficiently.

Lenders usually set an upper age limit as well. Normally you can’t be older than 70 or 75 at the end of the mortgage term.

Types of Buy to Let Mortgages

The interest rate depends on the type of mortgage you are on, how much you are borrowing, and the rent you expect to earn on the property. The most common types can be categorised as:

  • Fixed-rate mortgage

A fixed repayment amount over a specified period (typically the longer the fixed period, the higher the level of interest)

  • Discount variable mortgage

Takes the lender’s standard variable mortgage rate and applies a set discount if the variable rate fluctuates.

  • Tracker mortgage

The opposite of a discount variable mortgage. The rate of interest is set at a percentage above the variable rate (Bank of England’s base rate).

Some Benefits

Buy to Let mortgages have good tax aspects attached to them. It is possible, for example, to claim the interest payments on the mortgage as a cost, unlike the capital mortgage repayment. As a result of this, many Buy to Let mortgages are interest only.

Regarding this aspect, and if things go well with your first property, you might be able to repeat the experience with additional properties. Some lenders are happy to provide up to 10 mortgages if they get assurance that the properties are well managed and the rent covers all mortgage repayments adequately.

You can also switch to a Buy to Let by a Buy to Let remortgage. You might want to do this if your Buy to Let remortgage would make your monthly repayments lower, or you might already have a residential mortgage on a property and want to rent it out to receive an income (many residential mortgages don’t allow you to rent the property out).

If you decide to go ahead with a Buy to Let mortgage, it is important to be well prepared. For a trustworthy source of information please contact Independent Mortgage Brokers;a Trustpilot rated ‘excellent’ company, offering free valuable mortgage advice online.

For any another query visit here: https://imbonline.co.uk/bad-credit/six-benefits-from-using-a-specialist-mortgage-broker/

 

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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