Buy to Let Mortgages
If you’re thinking of buying a property to rent out to a tenant, you’ll need to consider your mortgage choice from a range of Buy to Let Mortgages.
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What are Buy to Let Mortgages ?
If you can’t buy your investment property outright, you’ll need to apply for a mortgage. However, this mortgage will need to be a Buy to Let mortgage. A standard or residential mortgage is only suitable when you plan to live in the property.
There are differences between Residential and Buy to Let Mortgages. The main difference is the way affordability is calculated.
Instead of using personal income, mortgage providers will use the potential rental income of the property to calculate affordability. Sometimes lenders can take your personal income into account, but usually this is secondary.
Lenders typically look for a rental income that covers at least 125% of the monthly interest payments on the loan. This is known as rental cover. For example: if your mortgage interest costs £500 a month, you’ll need a rental income cover of £667. But in many instances, it’s necessary to have higher rental cover. 145% rental cover is fast becoming standard.
Additionally, but not always, a marginal interest rate is used in the rental cover calculation. Marginal rates vary from lender to lender. As a rule of thumb 5.5% is quite common, even if the actual interest payable rate is lower.
Buy to Let Mortgage deposits tend to be bigger, when compared to standard loans. 25% deposits are common. Larger deposits can attract competitive interest rates. It pays to seek advice when looking at buying to let.
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