A buy-to-let mortgage is a mortgage sold specifically to people who buy property as an investment, rather than as a place to live. If you plan to rent out a new property, most lenders will prefer you not to finance your purchase with a standard residential mortgage.
Buy-to-let mortgages are powerful tools both for experienced investors and for new landlords looking to take their first steps into the rental property market. Not everyone is entitled to take one out though: BTL mortgages are more expensive than typical mortgages, and usually require deposits of 25% upwards.
Most borrowers take out an interest-only mortgage for their chosen property. They then only pay the interest on the loan as it accrues every month, generally from the proceeds of the rent they collect. The capital debt (the full amount of the mortgage) is paid at the end of an agreed term.
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Most BTL borrowers prefer to take out interest-only mortgages, because they mean lower outgoings. Repayment mortgages are also available, and are becoming a popular alternative
Landlords seek out cheaper properties, but BTL mortgages cost more, both in higher interest rates and larger deposits
How much you can borrow will depend on your deposit, personal circumstances and rental income. Lenders normally require you to earn more in rent every month than you repay on your mortgage
Fixed rate mortgages have an interest rate that stays the same for a set period. This is generally between two and five years, although it is possible to get a longer fixed term. Your repayments are the same every month, so you’re protected from rises in interest rates. Most will charge you a penalty - known as an early repayment charge (ERC) if you choose to leave the deal before the end of the fixed term.
Interest rates adjust periodically with a variable rate mortgage, which means repayments may change throughout the loan term. Usually, the interest rate changes in relation to another rate; the Bank of England's base rate has a big influence on variable interest rates, as does the base rate of each lender.
For standard variable rate (SVR) mortgages, each lender has an SVR that they can move when they like. This often roughly follows the Bank of England's base rate movements. SVRs can vary massively between lenders.
Some mortgage deals carry arrangement fees, which can vary from a few hundred pounds up to a couple of thousand.
These set up costs can sometimes be made up of two fees. An increasing number of lenders charge a non-refundable booking fee, which is effectively a product reservation fee. If your house purchase falls through and you don’t end up taking the mortgage deal, you won’t get this fee back.
The second type of fee is an arrangement fee which you pay on completion of the mortgage so you won't have to pay it if, for any reason, you don't take the mortgage.
Overpaying on your mortgage could help you to pay it off early and save money on interest payments.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE