What is a buy to let mortgage?
The definition of a buy to let property (sometimes referred to as ‘buy to rent’ or ‘BTL’) is a type of property investment, in which the investor becomes a landlord and rents out the property for profit. A buy to let mortgage is a loan secured against one of these properties.
Like any form of investment, there’s a lot to consider before you can make the jump (and hopefully start making some money). JMS Buy-To-Let Business can source financial solutions from our approved list of lenders so if you are a first-time buyer of a buy to let property, we can help you get things started.
Do I need a buy to let mortgage to rent out a property?
If you are not a cash buyer, Yes. It is a special type of mortgage on the basis you will not be the permanent resident and is assessed differently to a normal mortgage.
What is the difference between a buy to let mortgage and a standard mortgage?
A buy to let mortgage differs from its residential counterpart in that it is largely assessed on the property’s profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than based on your own personal income or financial circumstances.
That said, many buy to let lenders will require you to have a minimum salary, typically £20,000 or £25,000.
Once approved, your buy to let mortgage enables you to rent out the property to tenants, whereas you cannot do this with a residential mortgage.
Other notable differences include:
- Interest rates – It is common for the interest rates on buy-to-let mortgages to be higher than residential mortgage rates.
- Deposit and property value – The minimum deposit you need to put down for a buy to let mortgage is higher than it is for a normal residential loan. Typically, you will be required to cover at least 20% of the property value yourself on a BTL mortgage.
- Arrangement fees – Arrangement fees on a BTL mortgage can be higher than on a conventional mortgage. You may also come across more arrangement fees that are calculated as a percentage of the amount you’re borrowing, rather than just a flat fee. It is also common for conveyancing costs to be slightly higher for a rental property.
Thinking about renting out your current home?
If you’re moving home, you may be interested in keeping your current home and transforming into a property to let – a process sometimes referred to as let to buy.
If you decide to move out of the property you are currently living in and intend to rent it out, you will need a buy to let mortgage. One option is to ask your current lender for their consent to let the property out, which might involve switching your mortgage to a buy to let rate – not all lenders will allow this. Alternatively, you can re-mortgage to a new lender on a buy to let deal. If you plan to stick with your current lender, you must inform them that you intend to let your home – failure to do so could mean a serious breach of contract.
If you need to release some equity from your current home to fund a new purchase, you can do so during the re-mortgage process – provided of course that you have sufficient equity and satisfy the lender’s criteria.
Should you take responsibility to accommodate a tenant, you also need to ensure certain things are in place like landlord’s insurance – and you will inherit many more obligations as a landlord.
Can JMS Buy-To-Let Business help?
Are you thinking of buying your first buy to let property, or adding to your current portfolio? Do you already have a buy-to-let mortgage and are looking to switch to a better deal? Contact our expert team of mortgage advisers today on 0203 637 6206.