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More about buy to let mortgages
Buy to Let Mortgages FAQs
What is a buy to let mortgage?
A buy to let mortgage is a mortgage on a property which you rent out to a tenant rather than live in yourself.
Are buy to let mortgages more expensive than residential mortgages?
Yes buy to let mortgages tend to have a higher rate than residential mortgages.
What criteria must I meet to take out a buy to let mortgage?
Along with the general criteria all mortgage lenders require, including having a good credit score and being within the lender's age limits, to take out a buy to let mortgage you'll usually need at least a 25% deposit. A number of lenders will also require you to own your own home (or have a residential mortgage on a property).
How much can I borrow with a buy to let mortgage?
The amount you can borrow will depend largely upon how much you're able to rent the property out for. As such, it's essential that you research the rental market in the area in which you're buying before making a purchase. Lenders will also look at your credit score and your outgoings.
Do I need a larger deposit to take out a buy to let mortgage?
Most mortgage lenders will require a deposit of at least 25% of the property value to take out a buy to let mortgage.
Do I need to own my home to take out a buy to let mortgage?
While most lenders would want you to have your own home before taking out a buy to let mortgage, it is possible to get a buy-to-let mortgage as a first time buyer. Your choice of products will be reduced however and you may be deemed a higher risk and have to stump up a higher deposit as a result.
What fees will I pay for a buy to let mortgage?
Just like with residential mortgages the main fees that apply to buy to let mortgages are booking fees, arrangement fees, valuation fees and legal fees - although not all fees apply to all products. Be warned however that some buy to let mortgages feature a higher arrangement fee than residential mortgages.
You'll also pay a CHAPS fee to your lender for transferring the funds to your solicitor. This is usually no more than £50.
What is a rental yield?
The rental yield is the income you make from renting the property out and is presented as a percentage of your property value. For example, if the property costs £100,000 and you rent it out for £10,000 per annum your rental yield is 10%.
What is a rental coverage requirement?
A rental coverage requirement is the minimum amount of rent you have to be able to achieve each month to obtain a mortgage. It is set as a percentage of the monthly mortgage repayments. Each lender will have their own rental coverage requirements but the industry average is between 125% and 145% meaning you have to be able to secure up to 45% more than your monthly mortgage repayment in rent to get the loan.
What are the benefits of a buy to let mortgage?
If you want to invest in property and can't afford to buy it outright, then a buy to let mortgage is your only option. Rental properties can provide an income and/or grow in value, but it is important to fully research the rental market and be prepared for long term investment.
What potential downsides should I be aware of?
Higher tax charges can apply to rental properties including higher Stamp Duty surcharges that those of residential homes. You should also consider what you will do if you struggle to rent out the property or have a long period with no tenants. When working out your budget be sure to factor in the costs involved with running a property, including letting agent costs, maintenance costs, etc.
How can I compare buy to let mortgages?
Buy to let mortgages are more complex than residential loans so it's important you're given all of the figures and facts clearly and concisely. Know Your Money's free to use comparison tables allow you to sort buy to let mortgages by rate, fees and overall cost to give you the clearest view of what's on offer.