A buy-to-let mortgage is one that is used for a property that is bought with the intention of renting out. If you use a residential mortgage for a property that you rent out you could be in breach of your agreement with your lender.
To rent out your property you’ll need to obtain permission from your lender or switch to a buy-to-let product.
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One of the main differences between a residential mortgage and buy-to-let mortgage is that you will require a larger deposit, usually at least 25%. As well as this, buy-to-let mortgage products are often interest-only, meaning that you won’t be repaying any of the capital you borrowed until you come to the end of your mortgage term.
Yes, you may be able to find a product that is available to first-time buyers for which you meet the criteria. However, some lenders will not consider offering buy-to-let mortgages to non-homeowners and usually require a large deposit and significant, steady income
This depends on the type of property, the location and size of the property. Most rental properties tend to cost less than residential homes and many landlords will typically look for properties that will offer a decent rental return. The average value for a buy-to-let property in January 2020 was £165,247. This is compared with an average of £274,773 for residential homes according to MoneySuperMarket mortgage search data.
Your interest rate on a buy-to-let mortgage will depend on a variety of factors including the value of the property, the amount of your deposit, your financial circumstances and the amount of rental income you expect to make.
The fees associated with buy-to-let mortgages are generally higher than residential property mortgages. These may include the following:
• Stamp duty, surveyors’ fees and other charges associated with buying
• Rental income tax
• Building and landlords’ insurance
• Rent insurance (optional)
• Letting agents’ fees, if using
• Maintenance and repairs for the property
• Ground rent (if applicable)
You may want to investigate landlord regulations and responsibilities to find out more about the costs involved in buying a property to let.
If your rental mortgage is an interest-only deal, you’ll need to repay the full amount of your mortgage at the end of the term. You may have the option of extending your mortgage or you might decide to sell your property. If you come to sell and the property price has increased, you’ll make a profit. However, if the value of the property has decreased, you’ll still need to pay back the full amount that you borrowed.
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Your buy to let property may be repossessed if you do not keep up repayments on your mortgage. Unlike most other mortgage advice, advice on buy to let mortgages are not regulated by the Financial Conduct Authority (FCA).
