Types of Buy to Let mortgage
Most buy to let finance is offered on an interest only or capital and interest basis. This allows you to choose whether you would rather repay more each month or at the end of the mortgage term.
Interest only buy to let mortgages allow you to pay just the interest due each month and pay off the entire capital when the mortgage ends.
Capital and interest mortgages require you to pay the interest each month, plus some of the capital. This means you can pay off all or part of the capital over the lifetime of the mortgage, leaving you with a reduced debt or none at all to pay off when the mortgage ends.
If you are thinking about buying a new home and retaining your old home to rent out, you could consider a let to buy mortgage. This will allow you to unlock capital from your old home to fund your new home purchase, leaving you free to rent out your former home.
Lending criteria for Buy to Let mortgages
Lending criteria vary from provider to provider, but there are some things most lenders will look for when deciding whether to offer a buy to let mortgage to a customer.
In general, buy to let mortgage providers will want you to:
- Own your own home
- Earn £25,000 per year or more
- Be over 25
- Be under 70 by the time the mortgage ends
- Have a good credit history
If you do not fit these criteria it is worth speaking to a mortgage advisor as they will be able to help you identity which lenders may still be willing to offer you buy to let finance.
Interest rates on Buy to Let mortgages
When purchasing property as an investment, the interest rate you pay will play a key role in determining whether you see a good return. It is therefore important to get the best deal possible and review your interest rates regularly versus those offered by alternative providers to see whether it may be worth remortgaging to get a better rate.
It is also important to note that most providers will require the monthly rental income from your property to exceed the monthly interest only payments on your mortgage. They will generally want the rent to equal at least 125% of the interest payments. This should be taken into account when thinking about how much you can afford to borrow.
You should also bear in mind the loan to value (LTV) ratio on your mortgage as this is also likely to affect your interest rate. LTV is the percentage of your property’s market value you take out as a loan. So a mortgage of £50,000 on a house worth £100,000 would give you an LTV of 50%. You will usually be offered lower interest rates on mortgages with a lower LTV.