What is a buy-to-let property? It’s exactly what it says on the tin…A property which is bought with the sole intention of being used as a rental property for the purpose of income and/or capital growth. Buy-to-let mortgages are one way of funding such a purchase, a loan to buy a property which you plan to rent out to tenants.
Buy-to-let mortgages work just like any other mortgage except lenders use a different method to work out how much they will lend to you. As with any mortgage, lending criteria varies from lender to lender but usually a buy-to-let mortgage is based on the rental income the property will achieve, this is to define if the property is self-funding (can pay for itself). Lenders have different ways they assess the applicants ability to make the mortgage payments, this is called “stress testing” and the calculation varies between the providers. Many lenders now have different calculations based on whether you are a lower or higher rate tax payer or portfolio landlord, with more borrowing leniency shown to lower rate tax payers.
When purchasing a buy-to-let you will most likely need a deposit of 25%. Buy-to-let mortgages are offered on a repayment basis or an interest only basis with a plethora of deals out there to suit your circumstances and help you achieve your buy-to-let goals. Some lenders will often restrict the amount of properties that you can own on a buy-to-let basis however there are lenders that specialise in buy-to-let portfolios, this is a niche market where specialist help and advice should be sought.
Buy-to-let mortgages are deemed to be higher risk than residential mortgages therefore understandably lenders will charge higher interest rates for these types of mortgages, additional costs such as arrangement fees can also be higher on such mortgages.
It should be noted that Buy-to-let mortgages are not regulated by the FCA (financial conduct authority) and are not controlled in the same way that residential mortgages and loans are therefore there are no standards set around how these mortgages are sold, advertised or promoted.