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Buy to Let Mortgages – What are they?

Buy to LetBuy to Let or BLT for short, is something which seems to come up a lot when it comes to the property market. So what exactly is a buy to let?

Buy to let is where a property is bought specifically to be rented out to tenants rather than be lived in by the investor.

Investors are able to make money this way as it generates an income by the rents charged so long as this is more than the monthly mortgage repayments (if there is one), and through capital gains when the time comes to sell.

However, like all investments, buy to let comes with risks. Whether its rising interest rates, being stuck with difficult tenants or being unable to sell due to changes in the housing market, an investor must be prepared for the inevitable. Introduction of higher stamp duties and less flexible rules on the tax relief an investor is able to claim contributes towards the risks associated with buy to let.

When it comes to buy to let, an investor can either fund the capital required themselves or consider another option, the buy to let mortgage.

What is a buy to let mortgage?

Standard residential loans apply only if a person intends to live in the property. So for buy to let properties, an investor would need to apply for a buy to let mortgage.

Residential mortgages would look at your salary to calculate your affordability. For buy to let mortgages, lenders view the potential rental income of the property as the main income source. Then personal income is taken into consideration.

Typically, the anticipated rental income would need to meet at least 125% of the monthly interest payments on the loan. This could be based on a fixed rate, the standard variable rate or an assumed interest rate, which could be the highest out of them.

The 25% leeway and interest rate headroom is there to ensure the investor has the means to pay during void periods where the property is vacant.

Deposits on buy to let properties also tend to be a lot higher than those on residential. Most buy to let lenders expect between a 25% – 30% downpayment with the very cheapest deals requiring at least 40% or more.

For further information on how to expand your buy to let portfolio contact us at