All You Need to Know Before Getting a Buy-to-Let Mortgage: A Beginner's Guide

All You Need to Know Before Getting a Buy-to-Let Mortgage: A Beginner’s Guide

If you are buying a property as an investment, a property that you plan to let out on rent, then you need to apply for a buy-to-let mortgage. A buy-to-let mortgage differs from a traditional mortgage, as it is specifically for buy-to-let property investments. If you are planning on investing in a rental property in the UK, here is everything that you need to know before getting a buy-to-let mortgage.

What Is a Buy-to-Let Mortgage?

In simple words, a buy-to-let mortgage is a type of mortgage that is taken out by a buyer when he or she is interested in purchasing property as an investment. If a buyer is buying a property to live in, he or she will apply for a regular mortgage. If the buyer is buying a property to give out on rent, he or she will have to apply for a buy-to-let mortgage.

Who Can Apply for a Buy-to-Let Mortgage?

If you are looking to invest in a house or a flat that you plan to give out on rent, then you can apply for a buy-to-let mortgage. In this case, you need to understand the risks of investing in a property and taking out a mortgage for that very property. In order to apply for a buy-to-let mortgage, you need to own a home of your own, one which is already paid for or with an outstanding mortgage. Usually, lenders have an upper age limit, which is 70 to 75 years. So, if you’re younger than 70 or 75, then you can easily get a buy-to-let mortgage. However, you must earn £25,000 or more a year, without which you might not be approved for a buy-to-let mortgage. And lastly, like any type of mortgage, it is important that you have a good credit score and most of your outstanding debts are clear.

Where Can You Get a Buy-to-Let Mortgage?

Most banks and lenders in the UK will give a buy-to-let mortgage. However, to find the best buy-to-let mortgage and the best interest rates, it is always a good idea to speak to multiple lenders. You don’t have to get a buy-to-let mortgage from your own bank; you can compare prices online, ask multiple lenders for offers and then choose the best buy-to-let mortgage that works for you. Buyers can get in touch with estate agents in Beckenham and local brokers to find a good deal.

What Is the Difference Between a Buy-to-Let Mortgage and a Regular Mortgage?

For one, the fees of a buy-to-let mortgage are much higher. Also, the interest rate that lenders charge on a buy-to-let mortgage is usually higher. When you apply for a regular mortgage, you can put down anywhere from 5 per cent to 50 per cent as the deposit, however when you apply for a buy-to-let mortgage you usually have to pay 25 per cent as the deposit. This number can vary between 20 to 40 per cent, depending on your finances, credit score and debts.

One important difference between buy-to-let mortgages and regular mortgages is that buy-to-let mortgages are interest-only. Basically, once you get a buy-to-let mortgage, you only have to pay the interest every month, not the initial loan amount. Once the mortgage term is over, then you have to pay the full capital amount. Since you are only paying the interest on a monthly basis, the interest is usually higher than a typical mortgage. However, there are some lenders which give a buy-to-let mortgage on a monthly repayment basis.

What Is the Current Buy-to-Let Mortgage Rate?

In November 2014, the buy-to-let mortgage rate of interest was 3.99 per cent. As of November 2020, the interest rate came down to 3.1 per cent. However, depending on the bank or lender, your financial status, your credit score and the total deposit, the rate of interest will vary from person to person.

How Much Can a Buyer Borrow With a Buy-to-Let Mortgage?

The total borrowing amount depends on various factors. One of the main factors that lenders consider is the amount of rent that you are expected to receive. The higher the rent, the more you can borrow; the lower the rent, the less the lender will be willing to give you. Of course, other factors such as your credit score, your annual income, your monthly utility bills and any major outstanding debts will impact the level of borrowing. If you decide to buy a property worth £250,000 at a 75 per cent loan to value ratio, then you will essentially borrow £187,500. In that case, you will have to put down 25 per cent as the deposit which will amount to approximately £50,000.

If you are looking for a good buy-to-let mortgage, a free property valuation or you’re looking to invest in rental property, get in touch with local estate agents today.