What type of mortgage do you need for Buy to Let properties?
To buy a property as a Buy to Let investment, you need to know what type of mortgage you need. There are two types of mortgages: a first-time buyer’s mortgage and a Buy to Let mortgage. The first-time buyer’s mortgage is usually for the person who is buying their first home and is not purchasing it as an investment. If you’re a first-time buyer, but would like to purchase the property as an investment, then you will need a Buy To Let mortgage.
A Buy to Let mortgage is basically a very high loan-to-value (LTV) interest only loan. The amount of deposit that you have will be clearly stated in the terms and conditions of your purchase, but it’s usually between 25% and 35%. In order to provide evidence that you can afford this type of loan, you need to provide your lender with the rental income that you will be receiving. So if you are purchasing a property for £100,000 and the rent is £800 per month, then your lender must see at least 12 months of rental income before giving out this type of loan.
Since the amount of deposit required for a Buy To Let mortgage is so high, the monthly payments will be much higher too. This means that you need to really start saving up in case the worst happens. If your tenant defaults on their rent after 3 months, then you might not have enough time left before another tenant moves in to cover for it.
What are are the Benefits of Buy to Let?
The benefits of buy-to-let are a little different than they used to be. One benefit of buying a property as an investment is that you can claim tax relief on the interest that you’ve paid to the lender. You must have a mortgage in order to claim this relief, but if you don’t have one, it’s worth considering investing in a property with the sole intention of getting the tax relief from the purchase.
Another benefit is having some cashflow coming into your account each month. This is when you will start to see a return on your investment. If you save this money instead of spending it, then it will grow and eventually become more valuable than what you paid for it.
Has there been any negative publicity with Buy to Let?
Even though there might have been some negative publicity with buy-to-let, it doesn’t seem to be affecting the market. House prices are still increasing and not much has changed in terms of the number of purchase offers that are being made on Buy to Let properties.