Can I get a buy-to-let mortgage?
Buy-to-let mortgages are a special type of home loan designed for people who have invested in property with the sole intention of renting it out, rather than living in it themselves. While taking out a buy-to-let mortgage is a relatively simple and straightforward process, there are a few things you need to be aware of and pitfalls to avoid… especially if you are a first-time landlord or don’t have much experience of the buy-to-let market.
A buy-to-let property is usually a house, apartment or other premises in which the buyer cannot reside permanently. Because buy-to-let purchases are viewed as business transactions, rather than personal ones, you can’t get a standard residential mortgage for a buy-to-let investment.
Also, most buy-to-let mortgages are interest-only, with the income the property generates used to pay only the interest each month, then the full amount borrowed being paid off at the end of the mortgage term.
What is a buy-to-let mortgage?
A buy-to-let mortgage is calculated based on how much income the property being invested in is likely to generate. The amount of rent it can achieve will be used to offset the cost of the loan, so if you are thinking of taking out a buy-to-let mortgage, you’ll need to be able to show your lender that the property’s rental yield will be around 25% higher than your monthly mortgage payment.
Many buy-to-let mortgage lenders have a minimum salary requirement which borrowers must meet, so if you have no regular income other than from your property, you may struggle to get a mortgage approved. That said, the returns from buy-to-let can be lucrative. There are many property entrepreneurs out there who have created a good life for themselves by building up a buy-to-let portfolio, so the opportunities are there to make a good return on your investment.
Most lenders tend to view buy-to-let mortgages as more of a risk than residential mortgages, simply because the income a buy-to-let property might be able to generate can never be guaranteed.
Landlords often face problems in collecting rent, for example, and unless they have a long-term tenant in place, the property may be unoccupied for varying periods of time.
This is one of the pitfalls of owning a buy-to-let property that you should bear in mind… will you still be able to afford the repayments even if you are not getting any rent from it?
How do buy-to-let mortgages work?
Because of the higher risk involved with buy-to-let properties, your lender may insist you pay a larger deposit. Arrangement and other fees will also tend to be higher, as will the interest rates available, when compared to standard residential mortgages.
It’s also worth bearing in mind that as most buy-to-let mortgages are interest-only, you will still need to settle the loan in full at the end of its term. Most landlords do this by selling the property and it’s here where you may be able to make a profit on your investment. However, you should remember that house prices can go down as well as up.
This is OK if your property has increased in value in the time that you have owned it, but if it hasn’t, you will still need to cover any shortfall. This is the key thing you need to consider when it comes to investing in a buy-to-let property. If you can’t afford to buy the property outright and need to get a buy-to-let mortgage, you should look at how much it might cost you over the lifetime of the loan, before deciding if it’s the right investment for you.
Can I get a buy-to-let mortgage?
If you are interested in investing in a buy-to-let property, whether you are a novice landlord or a seasoned property professional, there will be options available to you. As with most mortgages, having a large deposit will stand you in good stead. It will demonstrate to the lender that you are of good financial standing, as well as helping bring down the cost of your monthly repayments.
However, there are a few other factors that lenders will consider.
The older you are, the harder it tends to be to get a buy-to-let mortgage because most loans have a term of 25 years and many lenders set an upper limit on how old you might be at the end of your mortgage term. If the upper age limit is 70, for example, you will struggle to get a loan if you are over 45.
Many lenders also require that you have your own home, meet a minimum salary requirement (usually between £20,000 and £25,000), have a good credit record and can meet any other affordability tests.
Contact us for more information about Buy-to-Let Mortgages
My Mortgage Pro is a professional mortgage information service. While we don’t give advice, we aim to provide you with simple, jargon-free, no-nonsense information about buy-to-let mortgages to help you make the right choice. We can also connect you with a specially selected panel of leading mortgage advisers, who are authorised and regulated by the Financial Conduct Authority, who will provide advice tailored to your specific circumstances and help you find the right buy-to-let mortgage, fast.
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