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A guide on buy-to-let mortgages

Sun 13 Jun 2021

Whether you are an investor in the buy-to-let market or one of the great many “accidental” landlords who rent out their main property whilst living elsewhere, you’ll need to get a specialist buy-to-let mortgage. Although similar to standard residential mortgages, there are some important differences you need to be aware of. Let’s take a look.

  • Most buy-to-let mortgages are interest only. This means you won’t be repaying any of the capital during the lifetime of the mortgage, so it’s vital you know how you are going to pay off the loan or refinance at the end of the term.

  • You will need a larger deposit than with residential mortgage. Typically, you will need a minimum deposit of 25% of the property’s value. The best interest rates will be available to those with larger deposits of 40% or more. 

  • Upfront fees are higher than with standard mortgages, usually between 1.5% and 2% of the value of the loan. Be sure to factor this in when comparing deals.

  • The mortgage affordability test is based on the profit a landlord is likely to make from the property. Lenders use projected rental income and a representative interest rate to calculate ICRs (Interest Cover Ratios). Generally, the monthly income must cover at least 125% of the loan repayment.

  • As with residential mortgages, you can choose between a variety of different products including fixed rate, tracker, and discounted variable rate. Interest rates are historically low at the moment and there are very cheap deals around, particularly if you have a large deposit. 

  • Bear in mind that there is a 3% stamp duty surcharge applied on buy-to-let purchases. This is still applicable during the stamp duty holiday period.

If you are thinking of buying a rental property, give us a call on 01788 551111. We are happy to advise on all aspects of the buy-to-let market. In the meantime, click here to view our current properties on the market.

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