Buy-to-let mortgages

Posted 13 September 2015 by Keith Osborne

An introduction to the basics of the mortgage you'll need on a buy-to-let new home

If you're buying property to let out to tenants, and you're not paying cash, you'll need a buy-to-let (BTL) mortgage. Most lenders will require you to own your own home, either outright or with a mortgage, before giving you a BTL mortgage. They will also require you to have a good credit record.

There are some key differences between ordinary mortgages and BTL mortgages:

  • Interest rates and fees on BTL mortgages tend to be higher
  • The minimum deposit required for a BTL mortgage is usually 25% of the property’s value
  • Most BTL mortgages are interest-only – now extremely rare on mortgages for owner-occupiers

BTL lending is not regulated by the Financial Conduct Authority (FCA) except for when you wish to let the property to a close family member

The maximum you can borrow on a BTL mortgage is linked to the amount of rental income you expect to receive and lenders typically need your rental income to be 25%-30% higher than the mortgage payment.

It is recommended that you speak with a mortgage broker before taking out a BTL mortgage in order to get the best deal for your circumstances.

It's important to take into account that you may have 'void' periods, where you don't have a tenant, and you'll need to budget for enough funds to cover those times. Of course, this savings fund can be topped up in times when you do have a tenant.

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