Friday, February 03, 2023

Everything You Need to Know About a Buy-To-Let Mortgage: Availability, Affordability And Deposits

Everything you Need to Know About a Buy-To-Let Mortgage: Availability, Affordability And Deposits

A buy-to-let mortgage is similar to a regular mortgage, with the key difference being that this mortgage is typically taken out by landlords who are looking to invest in rental properties. Investing in a buy-to-let property is always a good idea. A buy-to-let property is a long term investment with decent returns, and the value of your initial capital increases significantly over time. After a few years of owning a rental property, you might find yourself wondering how much is my house worth and the answer will definitely impress you! If you are planning on investing in a buy-to-let property, here is everything you need to know about buy-to-let mortgages and before you begin, you can easily find the value of your property with Leaders.

Who can get a buy-to-let mortgage?

Any individual, who is interested in investing in houses or flats, or any rental property, can avail of a buy-to-let mortgage. This individual has to be able to afford the mortgage and understand the risks of investing in a rental property. And of course, such an individual has to have a good credit score, without which getting approval for a buy-to-let mortgage might be difficult.

In order to be eligible for a buy-to-let mortgage, you need to own your own home, even if you have an outstanding mortgage. You need to earn at least £25,000 a year, if not more. And most importantly, mortgage lenders have certain age criteria for buy-to-let mortgages, Usually, the upper age limit for a buy-to-let mortgage is 70 or 75 years. Keep in mind, the age cap is the oldest you can be when the mortgage ends, not when it starts. For instance, a buy-to-let mortgage can be taken out for 20 years, so if you take a buy-to-let mortgage at 50, then the mortgage will end when you are 70.

How much deposit is required for a buy-to-let mortgage?

Usually, a buyer will need to pay 25 per cent of the total value of the property as a deposit. This amount can vary from 20 per cent to 40 per cent depending on the lender, the value of the property and the financial status of the buyer. Usually, most lenders require a 25 per cent deposit. Some specialist lenders require a 15 per cent deposit for buy-to-let properties.

Where is a buy-to-let mortgage available?

Buy-to-let mortgages are available in almost every bank in the country. Most banks and lenders deal with buy-to-let mortgages, and of course, there are quite a few specialised lenders who only deal with buy-to-let mortgages. However, it is always a good idea to get in touch with multiple lenders to find the best buy to let mortgage for you. Also, if you get in touch with a mortgage broker before you take out a buy-to-let mortgage then he or she will be able to help you find the best mortgage for you.

Are buy-to-let mortgages affordable?

The amount of money that you can borrow for a buy-to-let mortgage is directly proportional to the amount of money that you can make from the rent. Usually, banks and lenders prefer to approve a buy-to-let mortgage when the average monthly rental income is higher than the monthly interest. The borrowing amount is also linked to the tax status of the individual. Lower taxpayers need to pay 125 per cent of the total coverage whereas higher taxpayers need to pay a little more than that. In simple words, the rent from the property should be 125 per cent more than the repayment, and more for higher taxpayers.

What is the difference between a regular mortgage and a buy-to-let mortgage?

For one, you can get a regular mortgage for your potential new home by paying as low as 5 per cent of the total value of the property as the deposit. For a buy-to-let mortgage, the minimum deposit value is 25 per cent of the total value of the property, whereas some lenders can even ask for 30 per cent or 40 per cent. Keep in mind that the interest rates on a buy-to-let mortgage are also much higher than those for a regular mortgage. Also, the fees for a buy-to-let mortgage are much higher. Essentially, a buy-to-let mortgage is slightly more expensive than a regular mortgage.

Another key difference between a regular mortgage and a buy-to-let mortgage is that most buy-to-let mortgages are interest-only mortgages. Essentially, the buyer has to pay the mortgage interest every month, but not the principal amount. Once the mortgage term is over, then the original capital amount is repaid to the lender, in full. Of course, there are some buy-to-let mortgages that are available in the market that allow monthly repayment.

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