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Buy to Let Mortgages – What’s Involved?

Using a buy to let mortgage is a popular method when it comes to purchasing an investment property. While buy to let mortgages can be handy, you’ll need to make sure you understand more about them before moving forward and weigh up their pros and cons.

One thing that investors should keep in mind when considering a buy to let mortgage is the amount they’ll be expected to spend in mortgage repayments each month. Our helpful calculator below allows you to work out the minimum rent required to cover your mortgage repayments. This way, you can work out whether it will be possible to generate a significant level of rental income after mortgage repayments have been made.

What Rental Income do I need to achieve to get a Mortgage

On a conservative basis you need to achieve 4% gross rental income of the amount you are borrowing to satisfy Buy to Let Mortgage lenders.

The below Calculator will easily work out the required rental income on your budget for you.

£ per month £ per year

Understanding Buy to Let Mortgages

Along with working out whether you can afford a buy to let mortgage, there are things you need to know about before you move forward. A buy to let mortgage isn’t as simple as a residential mortgage, and there are certain differences between the two, including different criteria investors need to meet before they secure their buy to let mortgage.

Here are three quick answers to some commonly asked questions about mortgages for buy to let properties.

What is a Buy to Let Mortgage?

A buy to let mortgage is a mortgage which is used to help with the purchase of an investment property. If you buy a property for the purpose of renting it out to tenants to generate rental income, this is the type of mortgage you’ll need to use.

Although buy to let mortgages can be helpful, they’re not necessary. Many investors choose to pay for the cost of their buy to let property with an upfront payment. If you have the funds available to do so, this can often be a much easier way to make an investment.

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What is the Difference between a Buy to Let Mortgage and a Residential Mortgage?

There are a few differences between residential and buy to let mortgages, the main difference being the fact that you can’t live in a property purchased with a buy to let mortgage. Another big difference lies in the rules for obtaining a buy to let mortgage. Unlike a residential mortgage, the deposit for a buy to let mortgage needs to be at least 25% compared to the typical deposit of 5%. This means that you’ll be prepared to pay a lot more for your deposit on a buy to let mortgage than you would when buying a residential home to live in.

What Criteria do I need to meet to use a Buy to Let Mortgage?

To use a buy to let mortgage, you need to meet certain criteria. The majority of mortgage lenders tend to only agree on a buy to let mortgage with people aged at least 25 years old, and who earn a minimum of £25,000 a year. You also need to already own your own home before obtaining a buy to let mortgage. Many mortgage lenders will also avoid agreements on a buy to let mortgage if the investor is purchasing an off-plan property.

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While there are some obvious benefits of using a buy to let mortgage such as the freedom to buy an investment property without having the full amount of cash available, there are also some disadvantages. Here are some of the ways in which paying upfront for your investment property can be easier than using a buy to let mortgage.

Buying Off-Plan Properties is Easier Upfront

If you’re interested in buying an off-plan property, this can be a problem if you want to use a buy to let mortgage. Because a lot of mortgage lenders tend to be wary of offering a buy to let mortgage for an off-plan investment, making an upfront payment is a lot easier. The good news is that due to the below-market rates of off-plan developments, you won’t be spending much more on the full price of the property than you would on the deposit of a pricey investment!

A Buy to Let Mortgage could leave you Out of Pocket

Depending on the type of investment you make, the price of your property could fluctuate depending on market changes. For instance, you could purchase a buy to let property using a buy to let mortgage and then need to sell the property due to unforeseen circumstances at a time when the market is performing at a low rate. If property prices have fallen by the time you choose to opt-out of a buy to let mortgage, you will still be expected to pay off the initial cost of the property. This means that even if your property has dropped from a value of £150,000 to £135,000, you’ll still need to make up the difference which will leave you out of pocket.

Top tip – Seek the advice of a mortgage advisor

If you’re still unsure about buy to let mortgages and want to find out whether or not using a mortgage to pay for your investment is the right decision, you should speak to a mortgage advisor for some expert insights.

For details on any of our off-plan investment properties, take a look at our UK properties section or get in touch for more information.