buy-to-let mortgages

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Buy-to-let mortgages explained

Want to find out about getting a buy-to-let mortgage and how they work? We’ve broken down what’s involved below:

What is a buy-to-let mortgage?

A buy-to-let mortgage is a loan that you can take out to buy a property for the purpose of renting it out. This can also be taken out as a remortgage on a property already owned, that you intend will become a rental property.

Who can get a buy-to-let mortgage?

You can obtain a buy-to-let mortgage if:

  • You want to invest in property
  • You already own a property, either outright or with a mortgage – you’ll struggle to get a buy-to-let mortgage if not
  • Your credit record is good, and you’re not stretched by other borrowings
  • You earn over £25,000 a year
  • You’re under a certain age. The oldest you can be when your mortgage ends is typically between 70 and 75

 

How do buy-to-let mortgages work?

Essentially, they work the way as a conventional mortgage does. However, a buy-to-let mortgage is regarded as a business transaction, so you’ll find that rates and fees will be higher than when applying for a standard mortgage. Your deposit will need to be higher too and is usually required to be around 25% of the property’s value.

Most buy-to-let mortgages are interest only, and you repay the capital in full at the end of the mortgage term. And, if your rental income exceeds your mortgage interest payments it will be liable to Income Tax. The repayment method is suited to investors using property as an alternative pension plan or looking to build a small property portfolio.

The Financial Conduct Authority (FCA) does not regulate most BTL mortgage lending. There are exceptions, for example, if you wish to let the property to a close family member. These are often referred to as consumer buy-to-let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.

 

How much can you borrow on a buy-to-let mortgage?

This depends on how much rental income you expect to receive. Lenders will usually require the rental income to be 30% higher than the mortgage repayment amount. The more you put down initially, the more competitive the deal can become, as certain criteria such as rental income to interest could be relaxed.

Want to find out more? Call our friendly team on 020 7078 0214, or send an email to info@kh-estates.com and we’ll be in touch shortly.