Answering Your Buy-To-Let Mortgage Questions
If you are planning on entering the world of property investment and you can’t afford to buy outright, the chances are you will need a buy-to-let mortgage.
What is a buy-to-let mortgage?
Although buy-to-let mortgages work in the same basic way as residential mortgages, the interest rate charged by lenders is typically around 1.5% higher. This is because the risk associated with the loan is considered to be higher, as landlords generally rely on a tenant’s rent to cover the monthly mortgage repayments. Should the tenant default, the landlord may be unable to make the repayment.
Buy-to-let mortgages usually require a larger deposit too. This figure is commonly at least 20% of the loan amount, compared with the minimum of 5% that is required for a residential mortgage. Note here that you must take out a buy-to-let mortgage for a rental property; renting out a property that has a residential mortgage is considered to be fraudulent.
Criteria for obtaining a buy-to-let mortgage
Some lenders will not offer you a buy-to-let mortgage if you don’t already own your own residential property and many will also ask that you have a minimum annual income of £25,000. The amount you can borrow will be directly linked to your income and to the rent your buy-to-let property is likely to generate. This figure must equate to a sum of between 25% and 30% in excess of your monthly mortgage repayments.
Where to obtain a buy-to-let mortgage
Although most of the major banks and building societies offer buy-to-let mortgages, their rates vary tremendously. It is therefore highly advisable to take professional advice from a reputable mortgage broker who will source the best deal for you.
If you are looking to secure a buy-to-let mortgage for a property in the Bath, Bristol or London areas, contact the experts at Fox Davidson. We are professional mortgage advisers and mortgage brokers.