In spite of recent and somewhat adverse tax changes, buy-to-let remains a popular investment opportunity, and one which many investors find profitable. At present, rental properties can be found as readily in the portfolios of high-flying investors as they can in the possession of first-time landlords who want to get more from their savings or make the most of their pension pot.
For many, buying a buy-to-let investment property will require a buy-to-let mortgage. This can be confusing for those who are unfamiliar with this specialist lending market. Here are a few key things to know and understand about specialist mortgages for landlords:
Finding Buy-to-Let Mortgages
Finding buy-to-let mortgages can seem difficult, but it does not have to be if you know where to look. They are generally available from major high street lenders and banks, but also from more specialist lenders such as commercial mortgage providers. Talk to the lender providing your main home’s mortgage or your bank, as they may offer a better deal for an existing customer, but do not take what they offer on the assumption it must be a good deal. Use the internet to compare the market, and think about whether it may be worth consulting a broker.
Eligibility and Applying
Precise eligibility criteria can vary from one lender to another, sometimes quite significantly. Generally, though, you will have to be a homeowner, and to reside primarily within the UK. Most lenders require the applicant to be no younger than 21, and many lenders do not accept applicants who will be over 80 at the time that borrowing is cleared. There will be affordability checks, which will likely include minimum levels of earned income and checks on outgoings. The lender will probably also check that the property can realistically attract a certain level of rent, usually around 125% of repayments. A good credit rating will normally be necessary, though some lenders are prepared to be flexible on this point. Some lenders also have restrictions on the kinds of properties they will provide a mortgage for, so this should be checked prior to making an application.
Deposits, Loan Amounts, and Repayments
You will usually be required to provide a deposit of at least 25% of the property’s value, and there may also be additional fees associated with the mortgage though it is often possible to add these onto the loan.. Most lenders require you to borrow at least £25,000 and up to a maximum which, depending on the lender and your circumstances, could be up to £750,000 per property. Some lenders, however, will allow you to hold buy-to-let mortgages for multiple investment properties at the same time, as long as all of the properties in question are realistically capable of covering repayments with rental income. The shortest repayment term you are likely to find is five years, and some lenders provide terms of up to 30 years. Repayment mortgages are most common, though it is also possible to find interest-only mortgages for buy-to-let investments.