Buy to let mortgages
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Buy to let mortgages
There’s no denying the appeal of investing in property, especially when it comes to building wealth, long-term capital growth and enjoying a regular stream of income. But, not everyone has the funds to buy a property outright, not with property prices as high as they are. This is where buy-to-let mortgages come in. Whether you’re trying out being a landlord for the very first time, or you’re adding to your already impressive property portfolio, a buy-to-let mortgage will take you one step closer to being a successful landlord.
At Everest Mortgages, we understand that buy-to-let mortgages can be confusing, but we’re on hand to help. As expert brokers, we’ll guide you through the process of finding the ideal mortgage for you, getting your landlord journey off to a strong start.
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What is a buy-to-let mortgage?
A buy-to-let mortgage works in a similar way to other mortgages, including first time buyer mortgages and low deposit mortgages. But, they’re designed specifically for people purchasing property as an investment, rather than buying a full-time residence to call home. Instead of living in the property, buy-to-let mortgages allow you to rent it out to tenants, generating income through regular rental payments.
Buy-to-let mortgages vs. traditional mortgages
If you want to buy a property to rent out, you can’t simply get a standard mortgage, as these are specifically designed for people purchasing a home to live in. Buy-to-let mortgages are different in a number of ways:
- With a buy-to-let mortgage, the property must be rented out and not occupied by you.
- Lenders look at the potential rental income of the property when they’re assessing mortgage affordability, not just your personal income.
- Unlike traditional mortgages, many buy-to-let mortgages are interest only, which keeps your monthly payments lower.
- If the mortgage is interest only, the property would usually need to be sold at the end of the term to repay the loan.
How does buy-to-let mortgage affordability work?
Whereas traditional mortgages look at your income, deposit and credit history, buy-to-let mortgages involve lenders basing affordability on the amount of rental income the property is expected to generate.
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Who are buy-to-let mortgages best for?
To put it simply, buy-to-let mortgages are best for landlords, but that’s quite a varied category. This is why there’s a wide range of buy-to-let mortgage types; some are best for first time buyers and brand new landlords, and others are ideal for professional investors.
First time buyers
If you’re a landlord who hasn’t owned a property before – whether that’s a residential property or investment property – and you don’t have a mortgage on a primary residence, you could buy using a buy-to-let mortgage.
First time landlord
You might be a first time landlord, but you might not be a first time buyer. There are buy-to-let mortgages designed for people who already have a residential property with a mortgage, but are investing in a buy-to-let property for the very first time.
Private investor
If you’re someone who has one or two investment properties and you rent them out to generate a second income, a buy-to-let mortgage could help you to manage the financial side of your investments.
Professional investor
You might be a professional investor, someone with a medium to large portfolio of investment properties, likely managed through a limited company. If that’s the case, and renting those properties is your primary source of income, buy-to-let mortgages are ideal.
Interest only vs. capital and repayment mortgages
There are two types of buy-to-let mortgages, but interest only buy-to-let mortgages tend to be the most popular. These mortgages keep repayments low as you only pay off the loan interest, and the capital is repaid when the property is sold or refinanced.
The other option is a capital and repayment mortgages, which are less common, but they’re often suitable for long-term investors who want to build equity over time.
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Reasons to choose a buy-to-let mortgage
There are a lot of benefits that come with taking out a buy-to-let mortgage and for many buyers, it’s the only way to purchase a property and enjoy regular rental income.
The benefits of a buy-to-let mortgage
- It gives you access to monthly rental income.
- You reap the rewards of long-term capital growth if property values rise.
- It’s an excellent way to diversify and grow your investment portfolio.
- You have the chance to build a property portfolio and enjoy passive income.
Of course, there’s a downside or two to taking out a buy-to-let mortgage. For example, the deposit requirements are often higher than traditional residential mortgages. There’s also the chance of rent fluctuating due to gaps between tenants, leaving you having to cover the mortgage repayments without rental income. But, for many, these are small prices to pay to become a buy-to-let landlord.
Frequently asked questions
How hard is it to get a buy-to-let mortgage?
It might not be as difficult as you first think. As long as you meet lenders’ criteria and have a good credit score, you’re in with a chance of being approved for a buy-to-let mortgage.
Can I get a buy-to-let mortgage with bad credit?
Yes, it’s definitely an option. There are many lenders who will approve you for a buy-to-let mortgage, even if you have a low credit score or poor credit history. You might have to deal with a higher interest rate and fewer mortgage options, but bad credit won’t immediately rule you out as a borrower.
What deposit do I need for a buy-to-let mortgage?
Most lenders require a deposit of between 20% and 25%, though this varies depending on the lender you choose. If you’re a first time buyer or a first time landlord, lenders might prefer you to have a larger deposit, as you might be seen as a bigger lending risk. Usually, a larger deposit means better interest rates.
Will buy-to-let mortgage lenders look at my personal income?
Yes, but that’s not all they base their decision on. Affordability for a buy-to-let mortgage mainly based on the expected rental income of the property you’re planning to buy, not just your monthly salary.
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