Buy To Let Mortgages
How Much Deposit Do I Need To Put Down?
The more percentage deposit you put down on a property the better the interest rate will be on the mortgage. To qualify for the more attractive rates in the market you should be looking at putting at least a 25% deposit down, however there are mortgages available with a lesser deposit.
A question that should always be considered is do I want the mortgage to be assessed just on the rental income or are you happy for your personal income to be taken into account when assessing the affordability of the mortgage? This will have potential implications on the other parts of your financial life and also this also guides us as to what level of deposit is needed (see below).
How Much Can I Borrow?
If you want the mortgage to be assessed purely on the rental income from the property then there is a formula to consider. Each lender is different, however here is a common formula that many lenders use:
The mortgage payments should be no more than 125% of the rental income. This is not done using the rate of the lender, instead it is an assumed rate (usually 5%) on an interest only basis. Here is an example:
The rental payments of a property are £500 per month. Therefore the mortgage payments should be no more than £400 per month. Therefore the mortgage can be no more than £96,000 (£96,000 x 5% = £4,800) (£4,800/12 = £400).
With a property with rental expectations of £500 per month you know that the maximum mortgage based on its rental payments is £96,000. This in turn dictates the deposit level.
So say the property is worth £130,000. You now know that you need a deposit of £34,000 in order to obtain the mortgage.
Can I Have An Interest Only Mortgage?
Interest only mortgages for main residence mortgages have fallen out of favour due to the risks of customers still owing money to the lender at the end of their mortgage term. However they are still commonly used for buy to let mortgages. This is because the house can be sold at the end of the term to repay the mortgage (it is another reason lenders prefer a higher level of deposit to avoid negative equity).
This helps keep costs down in order to provide profitable rental income.
Can I have More Than One Buy To Let Property?
We are seeing an increase in the number of accidental landlords inheriting properties, or people choosing to let their property out rather than sell it due to the fact the value of the property has decreased. Lenders have tightened their criteria on the numbers of properties borrowers can have, however yes you can have more than one and there are lenders that specialise in holding property portfolios.
Do I Need To Have Personal Income
Not necessarily, there are lenders that do not require you to have personal income. However many do require it. Many require you to have personal income of £25,000 per annum plus (again each lender is different). By not having this income does not stop you getting the mortgage, however will restrict the market and you should ensure that your entire financial situation is assessed to ensure that any mortgage lender being approached is correct for your situation.
Getting The Best Rate
The buy to let mortgage market has gone through significant changes over the last 10 years and has matured so that we are now in a period of competitive rates and deals through many specialist companies. There are many factors to take into consideration when choosing a buy to let mortgage lender: How much deposit do you have? How much is the rental income from the property? Do you want interest only or capital repayment? How many other buy to let mortgages do you have? What is your own personal income? Do you want a fixed or variable Rate and for how long?
Using cutting edge systems and industry knowledge and experience we are able to show you which mortgage deals are available for your specific circumstances from the whole of the market. We are then able to run cost comparisons to show you which mortgage is not only right for your circumstances, but also is the lowest cost.
Request a Free Mortgage Consultation. We will assess your situation and discuss what your objectives are. Using that information we will run this analysis and comparison and be able to come back to you to show you what your options and costs are.
Simply fill in your name, email and telephone number and we will be in touch shortly.
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