The demand for rental properties across the UK has made being a landlord an appealing investment prospect.
If you’re buying a property with the intention of letting it out, it’s imperative you get the right type of mortgage.
What Is A Buy-To-Let Mortgage?
A buy-to-let mortgage allows you to borrow money to purchase a property which you rent out to tenants. They’re often more expensive than a residential mortgage as they’re considered a higher risk.
If you have a residential mortgage and you rent out your property without telling your lender, you could be committing mortgage fraud.
Deposit for Buy-To-Let
A higher deposit is needed for a buy to let mortgage than a residential mortgage. You’ll be expected to raise at least 25% though some require up to 40%.
Buy-To-Let Mortgage Rates
Buy-to-let mortgage rates vary, and like any other type of mortgage; are dependent on a number of factors. The bank will assess how risky the loan is, how much the deposit is and your credit score.
Banks and building societies charge higher rates for buy-to-let properties as they are a riskier loan.
Affordability is assessed by a calculator that weights up personal income and expected rental income against the property. Most lenders will require the annual rental income to equal at least 125% of the annual mortgage repayments.
Statistics show that borrowers are more likely to default on a buy-to-let than a residential mortgage. This accounts for the higher rates. The required rental income buffer on top of mortgage interest due is there to allow for a periods where the property sits empty.