If you're considering buying a property to rent out, Wesleyan Financial Services can help find the right buy-to-let mortgage deal for you.
A buy-to-let mortgage is a loan specifically designed for people who want to buy property and rent it out. The rules for buy-to-let mortgages are similar to those for residential mortgages (buying a house to live in), but there are some key differences – as we’ll see below.
Always remember your mortgage is secured on your home. Your home may be repossessed if you do not keep up repayments.
Please note that most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority (FCA).
Applying for a buy-to-let mortgage is similar to applying for a regular mortgage, but eligibility criteria does differ.
For a buy-to-let loan, you’ll typically need a bigger deposit and interest rates are usually higher. This is because lenders often view tenants as higher risks than owner-occupiers.
You’ll also need to be 21 years or older to apply for this type of mortgage. If you’re considering a joint application, other applicants will need to be 18 years or older.
Learn more about what you need for a buy-to-let mortgage below.
You can get a buy-to-let mortgage under the following circumstances:
There are two main types of buy-to-let mortgage. The right one for you will depend on your personal circumstances and preferences:
For a buy-to-let mortgage, the minimum deposit is usually 25% of the property purchase price. However, this can vary between 20% and 40%. This percentage is different to a regular mortgage, where you’re often able to put down a deposit of as little as 5% of the purchase price.
The reason that deposits for buy-to-let mortgages are higher is because the loan is deemed riskier for the lender. That is, payments may be defaulted if the property isn’t the owner’s primary residence.
The maximum amount you can borrow on your buy-to-let loan is largely dependent on the amount of rental income you will be receiving. Usually, lenders need your rental income to be 25-30% higher than your mortgage payments.
Switching from a residential mortgage to a buy-to-let mortgage is quite common. There are a number of scenarios that may warrant a mortgage switch, such as moving homes or having an empty property under a residential mortgage.
If you want to switch your regular mortgage to a buy-to-let mortgage, you will need consent from your lender. If your current lender refuses, then you can look to remortgage with another lender. In either case, if you have a fixed term mortgage with early repayment charges, switching could result in these being applied.
For landlords with a portfolio of more than one property, interest-only mortgages are typically used to finance their investments. Interest-only mortgages mean that landlords pay interest on their loan each month, but not the capital amount. When the mortgage term reaches its end, the original loan will need to be repaid in full.
For new or aspiring landlords, repayment mortgages are often a more suitable option. Repayment mortgages may cost more month to month, but by the end of the term the property belongs in full to the landlord.
To read more about the about the advantages and disadvantages of these mortgage types, read our guide on interest-only vs repayment mortgages.