First Time Buy to Let Mortgage
Buying property to rent out can be a great investment, giving you a reliable monthly income while the property is also likely to increase in value over time. Unless you can afford to buy a rental property outright you are likely to need to take out a buy to let mortgage to fund the purchase.
Buy to let mortgages work similarly to standard mortgages and are offered by most banks and many building societies. There are some differences in the way a buy to let mortgages works, however, that are worth familiarising yourself with.
Types of Buy to Let mortgage
In general, you will need to look at either an interest only mortgage or an interest and capital mortgage. Your choice will depend on whether you would rather pay more each month and have less or no capital to repay at the end, or whether you would prefer to minimise your monthly repayments.
An interest only buy to let mortgage allows you to simply pay the interest due on your mortgage each month. You will then have to pay off all of the capital when the mortgage ends, either by selling the house, taking out a new mortgage or using other funds.
A capital and interest mortgage means you will pay the interest each month plus an extra amount which goes towards paying off the capital. This way you can either end up with no capital to repay when the mortgage ends or simply a reduced amount to pay off.
One alternative is to take out a let to buy mortgage. This is for people who want to raise money to buy a new property to live in and keep their old home to rent out.
Lending criteria for Buy to Let mortgages
When applying for a buy to let mortgage you will normally need to:
- Own your own home
- Earn over £25,000 per year
- Be older than 25 when you start the mortgage and under 70 when it ends
- Have a good credit rating
Different lenders apply different criteria when deciding who to offer buy to let mortgages to. This means that even if you do not meet the standard requirements you may still be able to get the finance you need. A mortgage advisor will be able to help you find the best options that fit your personal circumstances.
Interest rates on Buy to Let mortgages
To get the best return on your investment, you need to be sure you are getting the best interest rate possible when you take out your mortgage. Many providers will also require your monthly rental income to exceed your interest payments, so this is worth bearing in mind when thinking about how much you need to borrow.
The interest rate you are offered will depend on a number of factors, but one of the most critical is your loan to value (LTV) ratio. This is how much you need to borrow as a percentage of your property’s market value. So, if you need to borrow £70,000 to fund the purchase of a £100,000 property, that would equal an LTV of 70%. Most lenders will give better interest rates on mortgages with a lower LTV.
Compare Buy to Let mortgage rates
Using our free mortgage calculator you can find the best deals on buy to let mortgages from across the market. Simply follow the link and choose “Buy to Let” in the “Reasons for mortgage” field. All you need to do then is plug in some basic information about your borrowing needs and we will show you top deals from all the leading providers so you can make an informed decision.