If you’re looking for a way to diversify your investments and earn passive income, a Buy to Let mortgage might be worth considering. Buy to Let mortgages can be a great way to jump on the property ladder and generate extra income for yourself.
In simple terms, a Buy to Let mortgage is a loan that you take out to buy a property that you plan to rent out to tenants. The rent you receive from your tenants can help you cover the mortgage payments, generate a monthly profit, and if the property increases in value over time, you may be able to sell it for a profit.
While the idea of owning a rental property may sound appealing and can be a very rewarding investment opportunity, it’s also important to understand their unique set of risks and responsibilities before taking the leap.
My Mortgage Finder is a whole-of-market broker – our team of industry experts is here to help you find the best Buy to Let mortgage deal in the market that fits your budget, lifestyle, and needs.
Buy to Let mortgages: What they are and how they work
A Buy to Let mortgage is a type of mortgage designed specifically for individuals who are looking to purchase a property with the intention of letting it out to tenants. Unlike a residential mortgage, which is intended for individuals who are buying a property to live in themselves, a Buy to Let mortgage is focused on the potential rental income that the property might generate.
For the most part, Buy to Let mortgages are similar to any other mortgage – the application process is no different to a bad credit mortgage or a traditional mortgage. The key differences you’ll find are:
- Fees from the lender can be higher
- Interest rates are usually higher
- Minimum deposit is usually around 25% of the property’s value
Most Buy to Let mortgages are interest-only – this means you’ll pay the interest each month, not the capital amount. We’ll go into more detail about this later, as well as the types of Buy to Let mortgages available
Which Buy to Let mortgage is right for you?
Choosing the right mortgage product can significantly impact your financial situation and long-term investment goals. When it comes to your Buy to Let mortgage, you’ll find a few choices available to you:
- Fixed-rate mortgage – A fixed-rate mortgage guarantees you a fixed interest rate and monthly payment amount for a set period, usually between 2-5 years. Fixed-rate mortgages can be a good option for borrowers who want the security of knowing what their mortgage repayments will be and are not comfortable with the uncertainty of variable-rate mortgages.
- Tracker mortgage – A tracker mortgage is where the interest rate is linked to a benchmark, usually the Bank of England base rate. This means that the interest rate on your mortgage will rise or fall in line with the benchmark rate.
- Discount mortgage – A discount mortgage is where the interest rate is set at a certain percentage below the lender’s standard variable rate (SVR) for a fixed period, usually between 2-5 years. This means that your monthly mortgage repayments will be lower than the lender’s SVR for the term of the discount. It offers the flexibility of variable-rate mortgages while you still benefit from the initial discount on their interest rate.
- Interest-only mortgage – An interest-only mortgage is where the borrower only pays the interest on the loan each month, rather than paying off the capital as well. This means that the monthly mortgage repayments will be lower, but the borrower will still owe the full amount of the loan at the end of the mortgage term. Interest-only mortgages can be a good option for borrowers who want to maximise their rental income and can afford to make additional payments towards the capital of the loan.
Buy to Let mortgages: Your questions answered
*As opposed to a traditional mortgage and then renting.
Buy to Let (BTL) mortgages are designed for those who want to invest in property to rent out, as opposed to buying a house to personally live in. In this way, Buy to Let properties can be a lucrative income stream for the landlords that own them.
Most BTL mortgages are interest-only – this means you only have to pay the interest each month and nothing else. At the end of your term, you’d then pay back the full capital (the original money you borrowed) using savings, investments, or by remortgaging your home.
BTL mortgages are also available as a repayment mortgage – with this option, you’d be paying back the capital and interest at the same time.
Some lenders might have clauses against turning residential properties into letting properties. If they don’t, it is a requirement that you ask for their permission if you plan on letting your property.
Technically speaking, there is no limit to how many you can have.
This will vary from lender to lender, generally speaking, some lenders will limit landlords to around 3 to 5 BTL mortgages. Limits might be set according to the amount you can borrow instead (e.g. £5 million).
It is best you seek advice from an experienced broker like My Mortgage Finder, which offers a range of mortgage services, we’ll be able to advise you based on your unique circumstances. How many Buy to Let mortgages you can have will depend on the lenders, we work with a wide range of lenders across the industry – there is sure to be something for any situation.
It may be more difficult to get a Buy to Let mortgage as a first-time buyer – but it’s not impossible. Getting approved for a mortgage is (for the most part) about whether you can afford the monthly payments – being a first-time buyer doesn’t always stop you from getting good mortgages deal or even BTL mortgage deals.
Affordability is shown by credit history and your credit score – there is often an assumption that first-time buyers don’t have an extensive credit history which is why it makes it slightly harder to get a high-risk mortgage such as Buy to Let mortgage. Additionally, lenders might be concerned that first-time buyers will purchase a Buy to Let property to reside in which violates mortgage agreements.
While we can’t guarantee anything, at My Mortgage Finder, we are experts at what we do and we specialise in the unique cases that traditional mortgage providers might turn their back on. Give us a call today at 0113 868 7860 to get advice on what mortgages works for you.
How My Mortgage Finder can help you
Ready to start earning rental income? My Mortgage Finder is here to help you achieve your goals.
We have a professional team of mortgage experts that specialise in most areas of the industry, which ensures that there will always be someone that can advise you on your unique situation.
We will take care of everything for you so you don’t have to do any of the heavy lifting – from the moment you call us you’ll be in good hands. After your initial 15-30 minute call with your personal adviser, they will go away and do all of the research on your behalf to find the best mortgage deal around.
Once that is done, they will present their findings and give you advice based on their experience – but the choice will always be completely up to you! Ready to explore our Buy to Let mortgage deals?