A buy-to-let mortgage (also known as an investment mortgage) is designed for investors who want to let their property out to a tenants and generate a combination of income and equity. With recent changes recently coming into account, a personal buy to let mortgage is simply a buy to let mortgage in your own personal name.
More and more people are investing in property as a long-term opportunity to make profitable returns, and as a way of securing finance for their retirement.
Typically over the length of a standard mortgage, historically, property prices have always increased and offer a great tool for investment, and one which the British enjoy.
There are now plenty of competitive buy to let mortgages around that lenders offer and it could be a good time to invest in property.
Mortgage lenders will often assess buy-to-let mortgages on the earning potential of the property (i.e. the rental income) as well as personal income. Typically to obtain the better rates and open your options to the whole market, you would need to earn a minimum of £25,000 per year.
This is in order to satisfy the lender, you could pay the Buy To Let mortgage in periods when the property is not rented. Having said that there are also options in where lender do not have a “minimum income requirement” if for example you have not yet had your first years accounts, or you have just started employment.
When you take out a buy-to-let mortgage, you will be expected to meet certain lender criteria:
You will be required to put down a deposit for buy to let mortgages and this will be typically larger than for a standard residential mortgage – it will be in the region of 20%-30% of the property’s value. The more you put down, the better the rate and more likely the rental calculation will fit.
Your expected rental income must exceed your buy to let mortgage repayments by a certain percentage – Typically the lender may require a rental income of 145% of your mortgage balance at a rate of 5.5%.
Example. You would like to borrow £100,000:
The calculation is 100,000 x 145% (= 145,000) x 5.5% (= 7,975) / 12 = 664.58.
So in this case to borrow £100,000 the lenders valuer would need to agree that the property would be able to fetch a rent of at least £664.58 in order to qualify for a loan of that size.
Different lenders have different criteria and you may find some lenders criteria works for you better than others. At Mortgage Chain after assessing your situation, we would make suitable recommendations that reflect your needs.