Your mortgage is one of the most important aspects of buying a property. If you’re purchasing a home to live in, the mortgage process is fairly straightforward. But what if you’re buying a property in order to rent it out?
In this situation, you’ll need a buy to let mortgage. Let’s look at how this type of mortgage works and how it differs from other options.
What Is A Buy To Let Mortgage And How Does It Work?
A buy to let mortgage allows you to borrow money to purchase a property with the view to rent it out to other people.
Most buy to let mortgages work on an interest-only basis. This means you only make monthly repayments on the lender’s interest — you’ll have to cover the property cost (known as capital) at the end of the mortgage term. So while your monthly repayments will be lower in the short term, it’s important to have a financial plan in place to cover the capital once your mortgage term is over.
The amount a lender will be willing to give you is based on the rental yield you can expect from the property, rather than your income. As a general rule, your rental income should cover 125% of your mortgage repayments.
How Much Deposit Is Needed For A Buy To Let Mortgage?
One big difference between residential and buy to let mortgages is the deposit. With a buy to let mortgage, you’ll usually need to pay a deposit of at least 25% of the purchase price. This is because lenders see buy to let properties as a greater risk.
The more you are able to pay upfront, the better the deal you are likely to get from a mortgage lender. So, paying at least 40% of the property price as a deposit will usually secure you a lower interest rate.
Can I Live In My Buy To Let Property?
No, if you get a buy to let mortgage, you can’t live in the property. You also can’t get a buy to let mortgage specifically to rent your property to a close family member.
Can I Convert My House To Buy To Let?
If you currently have a residential mortgage but want to let your property out, it is possible to switch to a buy-to-let mortgage. There are a couple of ways to do this:
• Consent to let: Some lenders may choose to grant you ‘consent to let’. This means you can rent your property out while retaining your existing mortgage terms
• Remortgaging: Not all lenders are willing to grant consent to let, so you may have to remortgage your property, changing it from residential to buy-to-let.
While each of these offers a great opportunity for homeowners, they can involve complex processes, so we recommend speaking with a mortgage advisor to work out the best plan for your property and circumstances.
It’s also important to remember that buy to let mortgages tend to involve higher interest rates. Plus, if you want to remortgage or amend your existing mortgage before the current term is up, you may face early repayment charges.
Can First Time Buyers Get A Buy To Let Mortgage?
Many lenders do not accept first time buyers for buy to let mortgages due to the financial risk involved. They generally require at least one mortgage applicant to already be a homeowner.
However, there are some exceptions, and a mortgage broker will be able to help you find the right lender for your circumstances. If you’re looking to get a buy to let mortgage for your first property purchase, be aware that you will need a higher deposit (at least 25%) and you won’t be eligible for stamp duty relief.
Top Tips For Securing A Buy To Let Mortgage
Whether you’re switching your current mortgage to a buy to let one or you’re adding to your rental portfolio, here are a few tips to help you get the most out of your investment.
Factor In ‘Void Time’
It’s vital to remember that your property won’t necessarily have a tenant 100% of the time. There may be periods where the property is empty, and you will still need to cover the mortgage payments. This is why it’s important to take ‘void time’ into account when listing your property’s rental figures.
Don’t Assume You Can Pay The Mortgage Capital By Selling The Property
The most straightforward way to pay your mortgage capital at the end of the term is to sell the property. However, the property market is always fluctuating, and there’s no guarantee that your sale price will cover the outstanding amount. With this in mind, it’s essential that you have a strong and realistic payment strategy in place
Always Get Advice From A Mortgage Specialist
As with any investment, buying a property — particularly one to rent out — comes with a range of risks. A mortgage expert can help you understand the complexities of the process and ensure you get the best deal.
Find The Right Mortgage For Your Property With Key Mortgage Advice
If you want to learn more about buy-to-let mortgages, let the team at Key Mortgage Advice help. Our team of professionals is here to save you time, money, and hassle — we can ensure you get the right mortgage for your requirements at the best price.
We also have plenty of resources available to help prepare you for accessing a buy-to-let mortgage and becoming a landlord. Take a look at our buy-to-let basics guide and learn about your responsibilities as a landlord.
If you’re ready to explore your buy to let mortgages options, please feel free to get in touch. Call our Southport, Preston, or Garstang office or contact us online to schedule an appointment.
