Buy-to-let mortgages: what you need to know
If you are considering buying a property in order to let it out then unless you can afford to buy it outright you will most likely require a mortgage lender to lend you the money. Buy-to-let mortgages differ from standard ones as we will explain in this blog.
A buy-to-let mortgage is a legal agreement between a bank or building society and yourself in which the lender provides you with enough money to purchase a property with certain conditions attached.
Buy-to-let mortgages differ in that interest rates are almost always higher than standard mortgages (usually by around 1-1.5%). The reason for this is that there is a higher degree of risk involved for the lender, as the landlord could default on their mortgage payments if they are unable to find a tenant for an extended period of time, or if the tenant is unable or unwilling to pay the landlord.
The deposit required for a buy-to-let mortgage also tends to be higher, usually somewhere between 20% and 40% of the overall value of the property. Click here for tips on raising money for a deposit.
The amount that you can borrow from a lender is related to your income; usually this means that you can borrow up to three times your annual salary. The amount you can borrow is also linked to the potential income of your property, so lenders will usually only lend you 25-30% more than your rental income.
Buy-to-let mortgages are interest-only; this means that only the interest on the mortgage is paid off each month. However, at the end of the mortgage you will still pay off the remainder of the mortgage.
There are lots of lenders around to choose from and you should certainly do your homework before you make a decision. Many high street banks offer mortgages but there are also independent brokers who may be able to offer you valuable advice.
Buying a property to let out is a big investment, not just in terms of money but also in terms of time. The responsibilities that come with being a landlord aren’t for everyone and you may wish to consider hiring an agency to handle the management of your property. They will be able to deal with most problems that arise from tenants and allow you to take more of a back-seat role.
For more information about buying a house to let it out, please read our Buy-To-Let Guide.