How To Find The Right Buy-To-Let Mortgage For You
Before we go on a step-by-step breakdown of finding the best buy-to-let mortgage to your needs, you have to understand the similarities and differences between residential mortgages and buy-to-let mortgages.
First of all, buy-to-let mortgage lenders want investors to guarantee that the monthly rent they will charge is about 125 per cent more than the monthly interest payment on the loan you are going to take out. This means that a monthly interest payment of £500 requires monthly rental income of at least £625.
Secondly, you have to pay standard deposit fee rate of 25 per cent or more, because there is a higher risk of default with buy-to-let mortgages compared to residential ones. Remember that investors can’t be protected against bad tenants or interest rate shock at all times.
Next, buy-to-let mortgages are almost exclusively offered in the form of interest only mortgages. Interest only mortgages are cheaper than repayment mortgages (common with residential mortgages), because the borrower won’t have to make capital repayments along with the amount you actually owe the lender. This frees up extra cash for a landlord to cover maintenance costs.
Last but not least, buy-to-let mortgages aren’t affected by new rules introduced in the Mortgage Market Review. But this doesn’t mean that buy-to-let investors are immediately free from stringent application processes. For example, while you might get a buy-to-let deal at 4 pc, you will have to pass a cheque to ensure you can still afford your repayments if the rate happened to jump to 6 pc.
Ths next part of this blog post aims to give you a simple step by step guide on finding the right buy to let mortgage for you:
Step 1: Calculate how much deposit you can pay for
To get a buy-to-let mortgage, investors (like regular home buyers) will have to compute how much they pay can as deposit.
There are tons of ways to do this. You may take the regular route of saving up cash. You may also use some of your pension. Or – you may use the equity built up in your principal home to take out a second mortgage.
As you can see from the last option, being an existing homeowner with an active mortgage payment isn’t a barrier from investing in a buy-to-let property. While it shows lenders that you can manage borrowing large sums of money, never forget that this also increases your financial obligations every month.
Step 2: Know a lender’s criteria for borrowing
Some financial advisors claim that knowing which buy-to-let lender to apply to is key to accessing the best rates in the market for your capability. Martin Stewart of mortgage broker London Money warns that different lenders look for different qualities, and they also follow different application and assessment processes. So better pack a ton of patience when applying with different lenders.
Precise offers buy-to-let mortgages at the maximum value of £250,000 at rate of 3.64 per cent. Santander offer a higher loan value of £750,000 and lower interest rate of 2.35 per cent.
To learn more about which mortgages are offer on the market right now, you can consult a broker or approach banks or building societies. I’d choose the second option as last resort, however, since these institutions would tend to offer you only their products when you talk to them.