The rules of renting: a guide to buy-to-let mortgages
by Housesimple on 11th November 2016
If you're looking to rent out a property, it's highly likely that you'll come across buy-to-let mortgages. As a first time landlord, you may not have heard of these before, but thankfully they do what they say on the tin: if you are buying a property to rent out, or you want to start renting out a property you already own but still have a mortgage on, you'll need a buy-to-let mortgage.
Here we give you a brief overview of what they are, who needs them, and what you need to consider to apply for one.
What is a buy-to-let mortgage?
Standard residential mortgages only apply if you plan on living in a property yourself. If you want to buy or refinance a property in order to rent it out, you must have a buy-to-let mortgage.
Like a conventional mortgage, buy-to-lets require a deposit followed by monthly repayments at a pre-agreed rate of interest. They can also be ‘interest only’, so that you only pay interest each month, before paying the capital in full at the end of the term.
How is it different to regular mortgages?
The amount you can borrow is also calculated slightly differently too. Instead of just factoring in the property value, buy-to-lets consider how much rent you can get for the property versus the cost of the mortgage. Generally, lenders expect your predicted rental income to be at least 125% of the mortgage repayments.
You’re also subject to additional taxes. When buying the property, landlords face an extra 3% Stamp Duty, and when selling, any increase in the property value is subject to Capital Gains Tax.
Although there are specialist brokers who can advise you on the right product for you, buy-to-let mortgages are also available through many high street banks and price comparison websites.
When you apply for the mortgage, most lenders will expect you to already own your home, have a strong credit record, earn over £25,000 per year, and be under the age of 70. The reason for this is that they want to make sure you can cover the mortgage if, for some reason, the property is untenanted.