Buy-to-let Mortgages.
If you are looking to buy a property to let out then you must apply for a buy-to-let mortgage they have come under tighter guidelines recently but fundamentally they are very similar to normal mortgages, with a big difference of affordability guidelines.
What are Buy-to-let Mortgages?
They are what they say they are, mortgages for properties that you intend to let out if you use a residential mortgage on a property that you rent out you could be committing an offense and you should speak to your mortgage company first.
Buy-to-let mortgages are considered by lenders to be bigger risks than residential mortgage so you tend to find the deals available are not as attractive and you are required to put down a large deposit.
What size deposit do I need for a buy-to-let mortgage?
This is not a straightforward calculation as it may depend on the potential rental income from the property and the type of property you are buying but last year the average deposit for buy-to-let mortgages was over £60,000, but you should expect to be putting down between 25-40% the bigger deposit does tend to open up better interest rates as well.
Are interest rates the same on a buy-to-let mortgage?
Short answer: no, as buy-to-let are viewed as a higher risk, this can be frustrating as you are responsible for the loan and you may have an excellent credit score; the lender will take this into consideration in addition to your deposit and the rental income, but they still tend to be more expensive.
Why is rental income important when looking at Buy-to-let mortgages?
Most lenders will look at the annual rental income and apply a percentage, which is normally around 125% and insist that your rental income should be greater than or equal to 125% of your mortgage
For example .
Interest only loan of £200,000 at 5% the annual payments are £10,000 using the uplift of 125% your mortgage company will ask that your rental income is equal to, or more than, £12,500 per annum.
If it’s not then you will need to find more deposit to reduce the loan.
Can anyone apply for a buy-to-let Mortgage?
In addition to the affordability you will need to meet some other criteria, these are general figures and you should check with your broker; lenders will ask for a minimum age of 25 and a minimum income of £25,000 (not including the rental income), there are also restrictions on how many loans you can take out which seem to look at the overall amount of borrowing rather than number of loans.