Buy To Let Mortgages
If you’re buying a property as an investment, with the intention of renting it out, then you’ll need a buy to let mortgage. There are several differences between conventional and buy to let mortgages. It’s therefore important to understand how they work before you go ahead.
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What is a Buy To Let Mortgage
Buy to let mortgages differ from standard mortgages in several ways.
The Financial Conduct Authority (FCA) regulates residential mortgages, however, buy to Let mortgages do come fall under their jurisdiction.
The loan amount on a residential mortgage is based on your personal income minus your outgoings and other commitments as well as the property valuation.
The loan amount on a buy to let mortgage is based on the achievable rent as well as the property valuation.
Interest rates and fees tend to be higher on buy to let mortgages as lenders deem them to have more risk.
The majority of standard residential mortgages on the market today are repayment mortgages. With a repayment mortgage, you will repay both the interest charged and the original capital. <
With But to Let mortgages, you can choose between interest only and capital repayment. If you choose an interest only mortgage, you will only pay back the interest on the loan rather than the loan itself. The result is that your monthly repayments are lower. However, at the end of the mortgage term, you still owe the original capital.
What Deposits Are Required
As lenders consider a buy to let mortgage a higher risk than standard mortgages they generally ask for a larger deposit. Deposits will vary from lender to lender but are typically between 15% – 40%.
From the buyers perspective, it can be more difficult to raise a larger deposit. On a positive note, it does have the benefit that when the mortgage comes to an end, the capital owed is less.
Buy To Let Mortgages – Fees and Expenses
Like most Mortgages, buy to let mortgages can have fees attached such as arrangement and valuation fees. However, it is possible to get these free or have the option to add them on to the loan.
On top of this, another cost to think about, and one that you will need to pay, is Stamp Duty, this starts at 3% and was introduced in 2016 for anyone purchasing an additional property.
You will also need to factor in letting agent fees, solicitors costs as well as landlord insurance.
Any income generated from the property will also be taxable.
Who Can Apply for a Buy To Let Mortgage
The requirements will again vary between lenders.
Most high street lenders will look for a minimum personal income of £25,000 a year and will not lend past the age of 70-75. They will also require you to own your own home.
However, several specialist lenders have no minimum income threshold or a maximum age limit to which they will lend.
Some will also consider 1st-time buyer/1st-time landlord applications.
Find Out More
The buy to let mortgage market can be complex. As this type of mortgage is considered a higher risk the lenders scrutinise each application much more closely.
At Elementary Mortgage Solutions we specialise in the buy to let mortgage market. We work with both portfolio landlords and those who are taking their first steps into the sector. Our mortgage advisers have many years of experience and can not only help you find the best deals but also navigate the tricky mortgage process.
To speak to a member of our team please call us on 0115 7845780 or send your enquiry through our contact form.