How does a buy to let mortgage differ to a residential mortgage?
A buy to let mortgage is assessed differently to a residential mortgage as the lender is mainly concerned about how much income your property will generate rather than your own income and expenditure, but lenders normally require you to be earning an income. Lenders generally need the rental income to be between 125% and 145% of the monthly mortgage payments.
Considering a let to buy?
If you move out of your own home and rent it out this is referred to as a let to buy, however you will still need a buy to let mortgage for your property.
You can ask your current lender to switch your mortgage or find a new lender offering a buy to let mortgage. Our mortgage brokers can assist you with ‘let to buy’ mortgages so contact us now.
Key considerations before taking out a buy to let mortgage
- Understand UK legislation and regulation so you make the most tax efficient purchase. Remember the amount of tax relief for buy to let landlords will change in 2020.
- Consider the type of property you want to buy, the area where you want to purchase and the type of tenants it appeals to.
- Review your responsibilities and decide if you will manage the rental or pay someone to do this for you.
- Remember interest rates on buy to let mortgages tend to be higher than residential mortgage rates.
- Consider affordability. How much you borrow will be determined by the property value and expected rental income, but you may also have to pay maintenance costs or have an empty property when you won’t get rental income.
- Minimum deposits for buy-to-let mortgages are generally higher than for the equivalent residential mortgage.
- Arrangement fees can often be higher for buy to let mortgages.
- You will pay income tax on any profit you make from renting your property, although certain costs associated with maintaining the rental can be offset against the rental income.