Buy-to-let mortgages – everything you need to know

What is a buy-to-let mortgage?

With the wide range of mortgage types available, it’s advisable to investigate all the options that is available to you in order to make the most of your monetary assets.  Our handy guide to buy-to-let mortgages is designed to give you a descriptive overview to this type of investment solution so that you can fully understand what it involves and be in a better position to decide if it is the best course of action for you to take. We can help to secure buy-to-let mortgages for clients across West Sussex, Surrey and beyond, and are always happy to offer no-obligation advice.

A buy-to-let mortgage is one in which you, as a landlord, would enter into on a property that you planned to rent out. It is not one that you would choose for your primary home. Typically, interest rates are more expensive on buy-to-lets than with other types of mortgage, but they enable you to invest your money in property if you are looking to make a living from being a property investor.

Do I qualify for a buy-to-let mortgage?

If you have a house or flat, or a number of properties that you plan to buy and then rent as an investment, you may qualify for a buy-to-let mortgage. Providers will look at your existing circumstances and is it less likely that you will be accepted if you don’t already own your own home, although this doesn’t necessarily have to mean that you own it outright – having a mortgage on your primary live-in property is often sufficient.

A good credit rating is important when trying to secure a buy-to-let mortgage deal, as lenders will want to know that you will be able to keep up with your repayments. While it is usually not a problem to have a personal mortgage, you should be able to comfortably cover the repayments on this before applying for an additional buy-to-let mortgage. Generally speaking, the money your regularly earn is also a factor that providers will consider and you are unlikely to be successful if you do not have a good, regular level of monthly income.

Age is another factor. Lenders may have upper age limits, which are typically set to what your age can be when the mortgage is due to end, rather than when it starts. If you can prove that you should be able to repay it quicker, then your current ages isn’t necessarily going to work against you.

Are there any factors to be aware of with a buy-to-let mortgage?

Interest rates can be higher, as previously mentioned, and fees can be higher too. The flipside to this is that most buy-to-let mortgages are interest only, so they can be much more manageable for investors. You should still be aware though, that at the end of the mortgage term, the capital will still have to be repaid in full. In addition, it is common for the minimum deposit required for a buy-to-let mortgage to be higher than for a personal mortgage – on average you can expect to put down approximately a quarter of the property’s value; sometimes more.

When looking at the figures and projecting your rental income, it’s wise to consider that there may also be periods when your property is unlet. We can discuss your overall financial plan with you to ensure that you are covered during these periods. It’s also worth considering that the housing market can be predicted, but is not guaranteed – do you have a contingency plan for if house prices were to fall at the time you were looking to sell and repay your buy-to-let mortgage?

Finally, it’s important to consider the tax implications. If you were to sell your buy-to let property and make a profit (which presumably, you would like to), you will then be faced with Capital Gains Tax if the profit exceeds the annual Capital Gains Tax threshold.

How do I find the best buy-to-let mortgage deal?

The best buy-to-let mortgage deal is going to depend not just on the interest rates you will be required to pay and the level of deposit you will need to put down, but on the amount you wish to borrow. The best deal for you may not necessarily be the one that’s the cheapest, but could have more flexibility that the others which would allow you to make a greater investment in your property and subsequently receive a greater return on that investment.

We offer buy-to-let mortgage advice for clients across West Sussex, Surrey and beyond, and are always happy to discuss whether a buy-to-let mortgage is a good option for you and, if so, how to proceed with your application.

Would you like to arrange an appointment with our Sussex-based in-house mortgage adviser?