If you want to purchase a property to rent out, you will need to apply for a buy to let mortgage. This type of borrowing works in a similar way to most mortgages, but with some key differences.
Most banks and many building societies offer buy to let mortgages, so there are a wide range of different options to choose from.
There are two main types of buy to let mortgage – interest only and capital and interest.
With an interest only buy to let mortgage you simply have to pay the interest each month and pay off the capital when the mortgage term ends.
With a capital and interest mortgage you pay the interest each month and put some money towards paying off the capital. This can either leave you with nothing to pay off at the end of the mortgage term or simply a reduced amount to pay off.
There is also the option of a let to buy mortgage which can be useful if you wish to rent out your current home and take a mortgage on it to fund the purchase of a new home for you to live in.
There are usually several restrictions that apply on buy to let mortgages, although the exact details will vary from lender to lender.
To qualify for a buy to let mortgage you will normally need to:
Not all lenders apply the same lending criteria, so even if you do not fit these requirements you may still be able to take out a buy to let mortgage. An experienced mortgage advisor will be able to help you explore your options and find the best available deals on buy to let finance.
The interest rate you pay on a buy to let mortgage will depend on a number of factors. Most lenders will want the monthly rental income of your buy to let property to exceed the interest only repayments on your mortgage. You therefore need to consider the likely rent you can charge on your property before considering how much you will be able to borrow.
It is also worth thinking about your loan to value (LTV) ratio when considering how much you want to pay in interest. LTV is a way of showing what percentage of your property’s market value you wish to take out as a loan. So, a £70,000 mortgage on a £100,000 property would equal an LTV of 70%. Most lenders will offer lower interest rates on mortgage deals with a lower LTV.
Our free mortgage calculator allows you to compare interest rates and other key features on buy to let mortgages from a range of top lenders. Follow the link, select Buy to Let from the "Reasons for Mortgage" drop down and share some basic information about your lending requirements to see which mortgage deals could work for you.
