What is a Buy-To-Let Mortgage?
A buy-to-let mortgage is a mortgage you take out on a property that you intend to rent out to tenants, and so has some differences to a residential mortgage, which is intended for use on the property you live in. Residential mortgages tend to be cheaper due to interest rates and product fees typically being lower, as buy-to-let properties generate a greater risk. When it comes to a deposit for a buy-to-let mortgage, 25% of the property’s value is the norm however, this can fluctuate between 20 and 40%. Arrangement fees can also be as high as 3.5% of the property value and stamp duty can be more expensive. Various types of properties are bought with a buy-to-let mortgage including a second home or a holiday let and you can get much the same types of mortgage as you can with residential including fixed, variable, tracker, discount, or capped interest, with the most popular being interest only. The most important decision to make is whether you will choose a repayment or interest-only mortgage. Interest Only It’s important to have a long-term payment plan when your mortgage term comes to an end as although interest only is cheaper than a repayment buy-to-let mortgage, once your deal ends you’ll need to pay off the cost of the property at the time it was purchased. You can do this by selling the property at a profit but if house prices fall and the property is worth less than you paid, you will need money to pay off any remaining debt. In the short term, however, interest-only mortgages can reduce your monthly outgoings. Repayment With this type of mortgage, you will repay the full amount borrowed by the end of the term, allowing you to decide whether to keep or sell the property. This type of mortgage is more expensive per month so it may only be feasible by charging a higher rent to cover it.Who Can Get a Buy-To-Let Mortgage?
Your eligibility in obtaining a buy-to-let mortgage comes down to a number of things including whether you own your own home outright or with an outstanding mortgage, if you have a good credit record if you earn at least £25,000 a year, and if you are under a certain age to ensure you are able to repay the full amount.How to Get a Buy-To-Let Mortgage
There are tax implications with buy-to-let mortgages so talking to a financial expert is key to ensure that it’s right for you. Firstly, it’s important to choose within your budget a property that’s desirable to renters, then research what buy-to-let mortgages are currently available and speak to an experienced mortgage broker in Manchester like Taylormade to help you find the best deal. It is also a good idea to speak to a lender, to see if you can get a mortgage in principle and then once your offer has been accepted on a suitable property, you can advise your solicitor to carry out searches, surveys, and contracts. What You Need to Apply.- Evidence of finances such as your last 3 months’ payslips, proof of monthly outgoings, utility bills, P60, proof of identities such as a passport or driving license, and any existing mortgage statements (if applicable).
- Full mortgage to pay off the original buy-to-let and replace it with another.
- Second charge allows you to use any equity in a property as security against another loan on the property.
- Portfolio landlord, where you own more than one buy-to-let property should consider remortgaging onto a multiple portfolio product.
