Buy-to-let Mortgages
A buy-to-let mortgage is designed for those looking to borrow money to purchase an investment property intended for rental purposes. If you plan to rent out a property you don’t fully own, this type of mortgage is essential. Lenders provide options for both first-time and "accidental" landlords, but the requirements can be complex. It's important to understand the basics before exploring available deals.
How Do Buy-to-Let Mortgages Work?
Most buy-to-let mortgages are interest-only, meaning your monthly payment covers only the interest on the loan, and the principal remains unchanged. This means the amount you owe doesn't decrease over time.
In the short term, this can be advantageous as your monthly payments will be lower compared to a repayment mortgage, helping to reduce your outgoings. However, when the mortgage term ends, you'll need a plan to repay the full loan amount.
Key Features of Buy-to-Let Mortgages
- Higher Risk for Lenders: Buy-to-let mortgages are considered higher risk, so you may need to meet additional requirements to qualify.
- Homeownership Requirement: Some lenders require you to already own your home, either outright or with a mortgage, before you can apply for a buy-to-let mortgage.
- Good Credit and Low Debt: Lenders typically expect a strong credit history and manageable debt levels, such as low credit card balances.
- Income Verification: You may need to provide proof of employment income or self-employed earnings, separate from any rental income. This is often required to be at least £25,000 per year. Earning less than this could make it difficult to secure approval from some lenders.
- Age Limits: Most lenders set a maximum age limit, typically around 75 years, though some may have lower age restrictions.
- Loan-to-Value (LTV) Ratio: Lenders often require a minimum LTV ratio of 75%, meaning you’ll need at least 25% of the property’s value as a deposit or in equity.
- Rental Income Requirement: The amount you can borrow is generally based on the rental income you expect to receive. Rental income should cover at least 125% of your monthly mortgage repayments. For example, if your monthly mortgage is £800, you should expect to earn at least £1,000 per month in rent.
