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If you are planning to become a landlord or want to expand your rental property portfolio, you may be considering taking out a buy to let mortgage.
Here’s a quick guide to how buy to let mortgages work.
What are buy to let mortgages?
Buy to let mortgages work differently to standard residential mortgages and are designed specifically for people buying or refinancing a residential property to rent out to tenants.
How much can I borrow with a buy to let mortgage?
With a standard mortgage, the amount you borrow is linked to your earnings. But with a buy to let mortgage, it’s about how much rent you will receive from the mortgaged property. Generally, lenders want the rental income to be 125% of the mortgage payment, but this varies depending on the lender.
To qualify for a buy to let mortgage with some lenders, you will also need to have a salary of at least £25k. This is in case there are periods you don’t have a tenant but can still meet the mortgage repayments.
How do I get the best rate on my buy to let mortgage?
Rates and fees are higher on buy to let mortgages than on a standard residential mortgage.
To secure a buy to let mortgage you’ll need a deposit of at least 25% of the value of the property. But just with residential mortgages, the bigger the deposit the better the buy to let mortgage arrangements available. A deposit of at least 40% will generally help you get the best buy to let rates.
Are there any interest only or repayment options?
The repayment option is popular with people looking for an additional pension or to grow a small property portfolio. It also ensures the individual can repay the loan in full at the end of the mortgage term.
Experienced property investors and professional landlords generally choose the interest only option. They tend to want to continue growing their large property portfolio. The interest only route gives them the cashflow to reinvest their property capital to purchase more properties. When the mortgage reaches the end of its term, the investor will usually sell the property to repay the original loan. Investors can also off-set the interest due against tax, so interest only options carry added advantages.
Are there any age limits when taking out a buy to let mortgage?
Most buy to let mortgage lenders have fixed upper age limits for lending. This is generally between 70 and 75, although it varies from lender to lender. But you should keep in mind that this limit is the oldest you can be when the mortgage ends. So, if you intend to take out a 25-year mortgage when you are 50, you will be aged 75 when it ends, so could be turned down by some lenders.
What about buy to let remortgages?
Like standard residential mortgages, buy to let mortgages only stay at the same rate for a certain time before changing. To avoid your monthly payments shooting up, you’ll need to remortgage with a different buy to let agreement. It’s also a useful way of releasing money to improve or refurbish your property or to further expand your portfolio.
Should I use a mortgage broker for buy to let mortgages?
To make sure you get the best buy to let mortgage deal for you, use a mortgage broker. They are experts in searching across the entire market to find their customers the best offers available. Using a mortgage broker saves you valuable time and money and can get the best deal to suit your requirements.
To guarantee you get reliable and impartial advice, choose an independent broker. They aren’t tied to a specific lender, so can give you impartial information.
Do you have any specific questions about your buy to let mortgage? Leave a comment below or contact us for impartial information on how to find the best rates.