Why compare buy to let mortgages
Not everyone wants to, or can afford to, own their own homes. Students, young professionals and holidaymakers simply want somewhere to stay for a short time before they move on. For others, buying a second house to rent out is a way of diversifying their income or investing with a view to topping up their pension – while others may have inherited a property that they’d like to do up and rent out rather than leave unoccupied. There is a huge demand for rented accommodation but whether you’re a first time landlord or it’s your profession, you’ll be looking for the best buy-to-let mortgage deals (as well as the best buildings insurance offers). Here’s our guide on how to get started.
What is a buy to let mortgage?
A buy to let mortgage is a mortgage that has been specifically designed for people who want to invest in property and rent out the house or flat to tenants.
Why do I need to get a buy to let mortgage?
Essentially, a buy to let mortgage is securing an investment rather than buying your main home. In some cases, a residential mortgage will have a clause that stops you from renting out your property to make money. Ignoring that, and going ahead anyway could land you in bother. Worst case your lender may decide you’re in breach of your mortgage terms and demand the mortgage is repaid immediately. Best to get the right mortgage for the job!
Why is a buy to let mortgage different to a standard mortgage?
While the standard aspects of borrowing money and repaying it over a period of time remain the same, you might find that there are a few differences. For a start, you’re likely to need a deposit of at least 25% before you’re able to borrow and fees tend to be higher. This is because lenders see tenants as a higher risk than owner occupiers and the mortgage on a rented property normally relies on tenants paying rent to cover the mortgage costs. Even more reason to compare mortgages then. The amount you are able to borrow is also worked out slightly differently being based on potential rental income as well as LTV.
Can I get a buy to let mortgage?
To be eligible for a buy to let mortgage, you’ll usually need to either own your own home outright or have an existing mortgage on it. It will also be much easier if you have a good credit history and you don’t have large levels of existing debt. Lenders also usually set an upper age limit – normally you can’t be older than 70 or 75 when the mortgage term comes to an end.
A repayment or interest only buy to let mortgage?
As with standard mortgages, you’ll need to decide whether you want a repayment or interest only mortgage. With repayment mortgages, you pay off the interest and some of the overall cost of the property each month. At the end of your repayment term, you’ll have paid off both the price of the house – the capital, and the interest on it.
The majority of buy to let mortgages are interest only where you pay only the interest on the loan and nothing off the capital. This means that at the end of the term, you will still need to find the funds to pay off the outstanding capital balance.
What sort of interest rate – fixed or variable?
Which type you choose will depend on your personal circumstances and preferences. Variable rate mortgages are usually either ‘trackers’ – where the interest rate is fixed at a rate above the standard Bank of England base rate, or fully variable - where your lender decides on a rate and can change this at any time. With variable rate mortgages your payments could go up or down as interest rates change.
If you choose a fixed rate mortgage, your interest rate and your monthly payments will remain the same for an agreed length of time. This is usually 2, 3 or 5 years but other terms are available. At the end of the deal you will usually be switched to your lenders standard rate unless you re-fix or switch.
Can I afford a buy to let mortgage?
Don’t rush into a mortgage application – you might want to consider the full cost. With a buy to let mortgage there are also a few extra things to take into account too:
- Mortgage cost
- Rental income
- Unlet periods
- Stamp duty
- Landlord tax relief is being phased out
- Other fees and changes that comes with being a landlord
How can I compare buy to let mortgages?
Comparing buy to let mortgages can be very time consuming, but that’s where we can really help. Use our comparison service to find out what deals are available for you today, and fast track your way to becoming a landlord. Remember to check out Landlord home insurance while you’re here.