A guide to buy-to-let mortgages
If you fancy yourself as a landlord and are looking for a property to rent out, then finding out exactly how best to fund this new project is your next important step. Buy-to-let mortgages are more complex than standard residential loans, so it’s also worth getting some good advice from your mortgage broker
Buy-to-let mortgages are designed for people who want to buy property as an investment, rather than wanting to live there. They work slightly differently, and most lenders require you to inform them if this is the intended purpose of the property.
What’s the difference?
Instead of asking for your income as a way of calculating affordability, the buy-to-let mortgage uses the potential rental income of the property you’re looking to buy. They’ll do some calculations to work out if it’s a good investment. Worth knowing that Some BTLs work off the client’s income or at least a combination of wages/rental returns.
You’ll also find that the required deposits on these types of mortgages are much higher. This is often at least 25 per cent. They also have fees that are much higher than residential mortgages, so this should always be taken into account. If you already own the property you’ll also be paying an additional three per cent ‘loading’ on the Stamp Duty band for the property. Plus, you’ll need to consider Capital Gains Tax when you come to sell the property.
Once you’re the landlord . . .
There are also lots of responsibilities that come with renting out properties, so you need to factor into the affordability calculations the cost of ownership - landlord insurances, maintenance and safety. You’ll also be responsible for protecting tenants’ deposits through a deposit scheme and fixing anything that goes wrong in the property. Some landlords decide it’s much better to ask a letting agent to handle this side of things, but again, this comes with some added costs to consider.
Over the long term, however, buy-to-lets can be a profitable and rewarding investment. Making smart decisions will help you maximise this, so do speak to experts about how to avoid the pitfalls of renting out a property.
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