Many investors are now buying portfolios of properties to rent out. This may require a special buy-to-let mortgage. On the surface, this is similar to residential mortgages but with a few key differences.
What Is a Buy-to-Let Mortgage and Why Is It Different From a Personal One?
Mortgage providers may see buy-to-let mortgages as posing a higher risk than residential mortgages. When a prospective owner applies for a mortgage, the lender establishes their affordability, but they have no information about prospective tenants. If tenants fail to pay rent or the property remains unoccupied for an extended time, the landlord may struggle to maintain the mortgage payments.
Because of the perceived risk, higher deposits are required for buy-to-let mortgages. This amount is typically at least 20-25% of the total value of the property, while some lenders may require 40% deposits. Arrangement fees may also be as high as 3.5% (of the value of the property).
On the plus side, while residential mortgages use capital and interest loans, buy-to-let mortgages are interest-only. This lowers monthly payments, but the loan must be repaid in full by the end of the term.
Who Can Take Out a Buy-To-Let Mortgage?
You can take out a buy-to-let mortgage if you already own or mortgaged a house, or if you have a good credit record and earn over £25K per year. The upper age limit is 75.
What Types of Mortgages are Out There?
Before taking out a mortgage, you have to consider the type of loan you will take and other additional costs.
Fixed-rate mortgages last between two and five years, meaning that your monthly interest payments will stay the same for the entire two to five year term. While this does provide stability, the rates are usually higher than variable-rate mortgages. Further, they will typically have exit fees if you choose to refinance into a different mortgage when your fixed term ends.
Standard Variable Rates are usually the default option, with rates that can change over time. In most cases, they will not have exit fees should you choose to switch providers later on.
Are you looking for a mortgage?
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