What mortgages are available for landlords?
If you are buying a property to rent it out, or looking to remortgage an investment property, you won't be able to get a standard residential mortgage. Instead, you'll need a buy-to-let loan.
The amount you can borrow will depend on the rental income rather than your salary and the size of the deposit you can raise is even more crucial.
This is particularly important, given that competition in the buy-to-let market has dwindled, along with new lending, since the onset of the credit crunch.
Many of the largest buy-to-let lenders of recent years have merged or become state-owned as a result of the crisis, and only those with large deposits are likely to qualify for the best deals. For example, all the table-topping deals available when this guide was written require a deposit of at least 40%.
Are there different types of buy-to-let mortgages?
While the number of buy-to-let mortgage deals has shrunk over the past two years, there are still a number of different options available. As with standard residential mortgages, you can choose from fixed or variable rate deals and the terms of the products vary.
Many landlords prefer fixed rate loans rather than trackers or discounts: because your rental income is fixed, setting your mortgage payments gives peace of mind and protection against possible interest rate rises.
What else do I need to consider?
As mentioned above, buy-to-let lenders take your expected rental income into account when deciding how much you can borrow: in most cases they will want it to be at least 125% of the monthly mortgage payments. For example, if your mortgage is £500 per month, you would need to earn at least £625 a month in rent.
Don't forget the arrangement fees. The set-up costs on buy-to-let mortgages tend to be significantly higher than those on residential home loans. Many lenders now charge a percentage fee, rather than a flat charge, on their buy-to-let mortgages and fees in excess of 1.5% of the loan size are not uncommon. It can therefore cost thousands just to take out a buy-to-let mortgage so it is important not to overlook this expense.
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