A Guide To Buy-To-Let Mortgages

Making A Success Of Your Second Home Investment

Why not join 2 million British second homeowners and use monthly rental income as a solid investment strategy?

With news that second homes are now worth almost £1 trillion to Brits, there’s an understandable urge for single residence homeowners to branch out and get on the buy-to-let investment ladder. Since 2001, there has been a 50% increase in the value of buy-to-let and overseas investment properties, which was priced at around £610 billion 18 years ago. In response to the increased demand, lenders have produced 15 times as many specialist buy-to-let mortgage products since the turn of the millennium. The following guide will help you understand how to get started in the second home investment world.

How Buy-To-Let Works

Essentially, a buy-to-let property involves you purchasing accommodation with the intention of renting it out to tenants as an investment opportunity. Alternatively, you might have decided to move out of your existing property, but keep it instead of selling it, allowing you to let it out to cover the repayments. In this latter scenario, you’d need to inform the lender and switch mortgage products to the buy-to-let model.

Understanding Buy-To-Let Mortgages

Much like a traditional mortgage, the loan is taken out and secured against a specific property. But as a landlord, you’ll need a good credit history, a solid understanding of property investments and be able to take on the risk of investing. Buy-to-let mortgages usually require you to have a minimum deposit equal to 25% of the offer price of the property you’re purchasing. You can also expect these products to have higher interest rates and fees in comparison to traditional mortgages.

What Will Lenders Look At?

Lenders are required to assess any loan applications on the basis of whether they represent a risk to them – so, buy-to-let applicants should have a strong credit history. It’s also important to demonstrate how you’ll be able to keep monthly repayments up if there is a break in rental income, for example if one tenancy term comes to an end, and you struggle to find new tenants to move in. As a result, most buy-to-let products aren’t available to applicants who earn less than £25,000 per annum. However, age can also be a factor, with an upper age limit in place which is typically between 70-75 years old. This means that if you’re 45 and you take out a 25 year buy-to-let mortgage, then the term would end when you’re 70 years old – most lenders won’t go much beyond this age.

Interest Or Repayment

Many buy-to-let mortgages are taken out on an interest-only basis, and a remortgage brokers Wirral team explains that you’ll be required to pay back the amount borrowed in a lump sum at the end of the term. This allows you to maximise your monthly return, with the assumption that the property will be worth far more than you initially paid for it at the end of your mortgage buy-to-let term. However, opting for a repayment mortgage allows you to pay back some of the capital each month and safeguards against any dips in the property market.

Navigating the world of buy-to-let mortgages can be complex for newcomers to the market, and one of the main questions that potential buyers have surrounds the topic of affordability. A professional mortgage advisor will analyse your individual circumstances and find an ideal buy-to-let product for you.