Buy to Let Mortgages Explained: What You Need to Know
Investing in property can be a great way to increase your income, but if you’re intending to rent out your properties, then you will need to apply for a specific type of mortgage to do so. We outline the key details of buy to let mortgages, including who qualifies for one, what is required for an application, and how much you can borrow.
What are buy to let mortgages?
A buy to let mortgage is a type of mortgage that allows you to buy a property for the purpose of letting it out to tenants.
Buy to let mortgages are very similar to ordinary mortgages, but the fees and interest rates do tend to be higher. You do not need a buy to let mortgage to rent out a property that you own outright but, if you are applying for a mortgage on a property you intend to rent out, you do need to disclose this to the lender.
Most buy to let mortgages are interest-only, meaning you pay the interest each month, but not the capital amount. Instead, you repay the original loan in full at the end of the mortgage term. The minimum deposit for a buy to let mortgage is typically 25% of the property value, but it can be as much as 40%.
Most buy to let mortgage lending is also not regulated by the Financial Conduct Authority (FCA). However, if you are applying for a mortgage on a property for the purpose of renting it to a close family member, then these are usually referred to as consumer buy-to-let mortgages, which are subject to the same affordability criteria as standard residential mortgages.
Who qualifies for a buy to let mortgage?
To qualify for a buy to let mortgage, you need to meet the following criteria:
- You want to invest in property for the purpose of renting it out to tenants.
- You already own your own home, either with an outstanding mortgage or outright.
- You have a good credit rating.
- You earn a high enough salary to afford the repayments – typically £25,000+ per annum.
- You are at least 18 years old and under the upper age limit – lenders usually have an upper age limit for the oldest you can be when the mortgage ends. This age limit is usually between 70 and 75, so the upper age limit for applicants depends on the length of the mortgage you are taking out.
How much can be borrowed on a buy to let mortgage?
There is no definitive answer to how much can be borrowed on a buy to let mortgage because the amount depends on the rental income you expect to receive from your future tenants.
Lenders typically want the rental income to be 25-30% higher than the mortgage payment in order to approve a mortgage. The rent you will be able to charge for a property depends on the market value for properties of a similar size in that area, as well as any amenities provided.
You can get a good idea of your potential rental price by checking similar listings in the same area online.
How to find the right buy to let mortgage
The best way to find the right buy to let mortgage is to use a broker who has access to the full market of lenders and can find you the most suitable deal.
Here at Opie & Associates, we can find the best deals on buy to let mortgages, so if you are looking to apply for a buy to let mortgage, please get in touch.