Buy-to-let mortgages explained

23rd Oct, 2019

Oakton Development Oak Tree Close

If you are buying a house with the intention of then renting it out, you will need to apply for a buy-to-let mortgage.

The basic principle of a buy-to-let mortgage is the same as a standard residential mortgage in so much as you will borrow a loan from a lender and then will pay it back over time, however the details of how much and how you pay it back do differ quite a bit.

For starters, the amount you borrow is not dependent on how much you earn, although if you earn less than £25,000 then you may have some difficulty in getting approval for it. It is, instead, based on how viable the investment is.

The lender will, naturally, take certain things into consideration; you need to demonstrate that you will be able to pay the mortgage off, regardless of tenants or not i.e. if the property remains empty for a period of time, you will need to show that this would not disrupt your payment plans.

They will also set out terms such as the limit on how much rent you will be able to charge – this is typically a quarter higher than your monthly mortgage payments. As well as this, deposit size will be determined – it is common for this to be roughly 25% of the property’s total value.

Due to the nature of a buy-to-let mortgage, interest rates and arrangement fees tend to be higher. Despite this, buy-to-let is designed for you to earn from your property. It is less for people looking to buy a house as a home but rather as an investment. Despite the high rates, it is quite often the case, that a buy-to-let is provided on an interest-basis, meaning that for every monthly repayment, you will only pay the interest off. Although this may sound too good to be true, it is vital to plan to pay the entire loan off by the end of the term.

Can I change my mortgage to buy-to-let?

In a word: yes. You can change your residential mortgage to a buy-to-let and many people do – it is very common. For example, you could be moving home and have an empty house under a residential mortgage. The buy-to-let mortgage would allow you to generate income on the property by allowing tenants in.

Several factors come into play here. For example, the type of mortgage you currently have, the terms laid out in your mortgage, what your plans are with the property etc.

You will, naturally, need to consult with your lender before doing anything. While many lenders would not have a problem, some may decline. If this is the case and you still wish to change, you may wish to begin a brand new mortgage with a separate lender, although this will most likely incur penalties depending on the terms laid out.

Am I eligible for a buy-to-let?

There is no limit to the amount of buy-to-let mortgages you can have so if you already have or are planning on developing a wide property portfolio, you can apply and may well get approved for multiple mortgages.

Naturally, like most things in the world, it isn’t as simple as just picking it up and running with it. Some lenders may impose various limits: how much you can borrow, how many you can apply for with them while others may have limits on how many you can apply for with other lenders.

As mentioned previously, buy-to-let is not solely based on your income like other mortgages. Instead, there are a few criteria that you have to meet:

  • A salary of £25,000 or more

  • Good credit record

  • Already own a home either outright or with an outstanding mortgage

  • Under a certain age (some lenders have age limits – incidentally, the younger you are, the more likely you are to be approved for a buy-to-let mortgage.

Buy-to-let is a fantastic way to make money on a property in order to save for future investments. If you wish to find out more about the different types of mortgages available to you then don’t hesitate to get in touch with us today!

We would strongly recommend that you seek advice from an independent mortgage broker due to complexity of the buy to let mortgages. For further information and for free advise please contact Ignite Financial Services, 01372 940 152 or info@ignitefs.co.uk

The Personal Agent are here to make your purchase as seamless as possible so get in touch today or call us on 01372 745 850 to find out about properties we have which you could buy-to-let.

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