Buy to let mortgage
A buy to let mortgage is a type of mortgage specifically for properties that are bought with the intention of renting them out.
Remember, a buy to let property is an investment!
Buy to let mortgages
So it is critical to find the right buy to let mortgage to make the most of your financial investment.
These mortgages are often set up on an interest only basis, which means you make monthly interest payments only. The balance that you borrow (the outstanding loan balance) doesn’t get paid back until the end of the mortgage term. It’s important that you have an appropriate repayment vehicle, often the sale of a property when it is bought with a view to let.
Can I change my existing home to a rental investment property?
Yes you can. You would need to convert your mortgage to a ‘let to buy’ mortgage, which is a specific type of buy to let mortgage, although in some exceptional circumstances a mortgage provider may consider adapting your existing residential mortgage.
What do I need to know about buy to let mortgages?
The amount of money you can borrow for a buy to let mortgage is dependent upon the estimated rental income from the property. Typically estate agents will be able to provide an estimate of rental income when you are viewing properties or you can find online companies that provide rental estimates.
Most mortgage companies will require an interest cover (the ratio of rental income to mortgage payment) of between 125% and 145%.
Most buy to let mortgage lenders will also look at your personal income when purchasing a buy to let mortgage in order to cover any void periods where you are required to cover the mortgage payments but do not have tenants paying you rent, or to cover any increases in interest rates without corresponding increase in rental income.
Buy to let mortgages often require larger deposits (they have lower loan to value limits) and higher interest rates than residential mortgages.
Most buy to let mortgage lenders will not lend to first time house buyers.
Remember to research stamp duty when purchasing additional properties as there are higher rates applicable when buying a second property (even if you are purchasing the second property as your residential property).