How do buy-to-let (BTL) mortgages work?
It’s a property loan that allows you to purchase or invest in a property and then rent it out to other people. The process of applying is very similar to that of any mortgage, but it’s important to remember that if you plan to rent out a property or a portfolio of properties to tenants, you must have a ‘buy-to-let mortgage’ rather than a standard ‘residential mortgage’.
How big a loan can you get? who can get a buy-to-let mortgage? and how many buy-to-lets can you have? are all questions we commonly get asked. The answers are all contingent on the applicant’s personal and financial circumstances and will vary from lender to lender depending on their risk and borrowing criteria. This is why it makes sense to compare the suitability of all products on the market with a mortgage broker who knows how to navigate it. At Private Wealth Mortgages our qualified advisers offer a FREE no-obligation initial consultation to get you started.
You are only able to take out this type of mortgage on a property that you wish to use as a rental home, so you must be sure this is the reason for your mortgage application.
Buy-to-let (BTL) mortgage rates and fees
You can take out an interest-only or capital repayment BTL mortgage on a choice of terms, such as a variable or a two-year fixed rate, with a number of lenders. You may find that the repayment interest rates are higher – often due to the fact that they are viewed as a higher risk for a lender.
The vast majority of BTL mortgages are provided on an interest-only basis. This means that, for each month of the mortgage term, you’ll only pay the interest on the loan, and none of the capital. With this choice your outgoings will be less each month, however, it’s vital that you have a plan in place to either pay off the full loan or refinance at the end of your mortgage term.
How much deposit do I need for a buy-to-let mortgage?
In many cases, especially if you are a first-time landlord, the deposit you will need to put down on your property will be higher than a residential mortgage. As with standard residential mortgages, the bigger the deposit you put down, the better the repayment rate you’ll be able to access.
How much do I need to earn to get a buy-to-let mortgage?
Following the FCA’s Mortgage Market Review, the rules with regards to mortgage ‘affordability’ checks have become more stringent, and especially so in recent years in the buy-to-let market. Like any mortgage, it’s important to assess whether or not you can afford to cover the repayments and consider every possible eventuality. For example, do you have enough money in savings to cover the repayments if your property had no tenants for a period of time?
Affordability tests to ascertain whether you will be able to afford to repayments will typically take the following into consideration:
– Any estimated or potential rental income you can expect to receive
– Your income and any income of a joint borrower
– The value of the property
– Household expenses and costs such as maintenance charges
Things to consider…
It’s essential that you obtain plenty of information about the property and the area in which you want to purchase. The investment opportunity will rely on economic factors in the area, such as how popular it is with renters and access to amenities. In addition, as a buy-to-let property is often a long-term investment, it’s wise to review any possible changes to the property market over a certain period of time.
It’s also advisable to obtain guidance from an accountant regarding the tax implications associated with a buy to let purchase. We have a number of trusted partners that we can recommend.
