When you’re looking to build a rental property portfolio, it’s essential that you understand how buy-to-let mortgages work and seek expert advice from a qualified mortgage broker. Mortgage lenders generally consider rental properties a much higher risk than a homeowner mortgages, mainly due to a concern about the stability of your rental income.
Available Buy-to-Let Mortgages
From the start, it’s important to understand that not all buy-to-let mortgages are available directly to landlords. Many large and niche lenders only work through regulated brokers, to ensure your needs and their criteria are carefully matched.
Difference Between Homeowner & Buy-To-Let Mortgages
There are five main differences between the lending criteria for homeowners and landlords.
- With only around 60% of all lenders being happy to finance rental properties, if you are looking to expand your portfolio, or rent out your existing home, your current lender may not be able to help.
- Secondly, with a higher cost of borrowing for buy to let finance, getting the best interest rate is key to your costs. Using our buy-to let calculator will help you compare rates.
- Another major factor to your being offered the most competitive rate is the size of your deposit – typically 25%+. Generally, the bigger the deposit the better the rate.
- Also, consider your investment properties carefully. Whilst lenders are happy to advance mortgages to homeowners for most property types, buy-to-let lenders prefer houses to flats and only specialist lenders will generally support flats above shops or multiple occupancy properties.
- One key benefit when financing a buy-to-let, is that lending is typically made on an interest only basis. This reduces your monthly costs compared to a repayment mortgage as you don’t have to pay back any of the capital until the end of the mortgage agreement. In addition, HMRC consider letting to be a business, so the interest costs can be tax deductible from profits, although this could change.
Having your financials in order is imperative when taking out a buy-to-let mortgage. From determining how much you could potentially borrow to buy your first investment property to working out what tax implications may be applicable, each decision you make is equally as important.
To help you with this, we have provided an extensive range of articles that can help answer any queries or doubts you may have.
If you would like to discuss anything further, don’t hesitate to contact one of our specialist buy-to-let advisers.
- How much can you borrow to purchase an investment property?
- How does rental income affect the amount you can borrow?
- Should landlords choose a repayment or interest-only buy-to-let mortgage?
- What to consider before buying an investment property
- The tax implications of adding an investment property to your wealth
- Let & manage yourself or engage a letting agent?
- Should you use your existing lender or switch?
- Pension vs property investment
- Tax saving tips for landlords
- Tax warnings for landlords
- When to sell, if for short-term returns