What is a buy to let mortgage?

Buy to let mortgages are used when you need to buy a residential property to let. In the past the cost of buy to let mortgages would have been significantly more than a residential mortgage. Due to increasing competition and the quick growth of the buy to let mortgage market this gap has reduced.

With a standard mortgage the lender will want to be sure that you can afford the repayments so they will ask for proof of your earnings to check. With buy to let mortgages the lenders only want to see that the mortgage payments can comfortably be covered by the expected rent. The rental income will be checked by the Surveyor when the property is valued so it needs to be inline with comparable properties in the area.

Most buy to let mortgages are taken out on an interest only basis as this is the most tax efficient, it also keeps the monthly cost down. A buy to let mortgage lender will want the rental income to cover the interest only mortgage payment by around 125%. So if the mortgage payment is £500 per month the rent needs to be at least £625 per month. This calculation does differ between buy to let mortgage lenders and will govern the maximum mortgage you will be allowed.

Mortgage fees have increased across the board over the past few months. For a buy to let mortgage expect lender fees to be in the region of 1% to 2% of the loan amount.

Deposits for a buy to let mortgage are still around 15% with some lenders expecting you to pay more now.

Generally you get the same choice of interest rates with buy to let mortgages. Tracker, fixed or variable will be available for you to choose from. With all mortgage products remember to check how long you will be tied to the lender for as this may affect your future plans for the property. Some buy to let mortgage products have an extended tie in period. This means the redemption or early repayment charge period lasts longer than the actual special interest rate period.

Buy to let mortgages are generally very quick to set up. The lender will credit score you and then get the property valued. Provided all the financial aspects stack up they will then issue your mortgage offer. There is no need to prove your income with payslips or accounts as the lender assesses your income on a self certification basis.

However, it is important that you factor in interest rate rises and property voids into your cashflow so you can be certain the mortgage repayments remain affordable.

Buy to let mortgages are only suitable for properties that will be let on an Assured Shorthold Tenancy (AST) basis. If it is your intention to use the property as a holiday let then a holiday let mortgage will be required. Not all buy to let mortgage lenders like this type of business and so there are only a handful of lenders offering holiday let mortgages.

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