It’s common knowledge that learning all about residential mortgages is essential if you’re going to be purchasing a property to begin with. However, that isn’t the only type of mortgage out there – there is also the Buy to Let mortgage to contend with. The main difference between an ordinary mortgage and Buy to Let is the fact that this type is for landlords who purchase a property with the intention of renting it out to tenants. This is the main reason why it’s important to be specific with your broker when it comes to the properties that you’re purchasing. Are you going to be staying on the property, or do you intend to rent it out as soon as you purchase it? By being specific you’ll be allowing your broker to help you make the right decision with regards to the type of mortgage that you get. Below are answers to some questions around taking out a buy to let property, including the percentage deposit needed for a buy to let mortgage.
What is the percentage deposit needed for a Buy to Let mortgage?
Another difference between a regular mortgage and Buy to Let is the fact that the latter tends to have a higher barrier of entry (partly because of the financial crisis of 2017). Lenders in general are still cautious when it comes to the kind of deals they strike with interested individuals. Regarding the percentage deposit, it depends on many different variables, but there are a few criteria that lenders have a habit of requesting such as:
- A 25% deposit of the full purchase price – this would be the typical number that lenders tend to go with
- For homes that have just been built, they might require you to go as far as 35% because these are often seen as unstable and risky investments
There will be even some lenders that will ask more than that, or perhaps ask for evidence that the market rate for the income of rent is at least 125% above the repayments for the mortgage.
How exactly can I benefit from Buy to Let?
When it boils down to it, how well you’ll be able to benefit from Buy to Let mortgages depend on three key aspects. These are:
- The amount of rent you earn from the property
- The probability of property rates to rise depending on inflation
- The amount that rent increases depending on those rates
This means that Buy to Let mortgages won’t necessarily earn you too much if you purchase a property in an area known for low and stable property rates. Rather, this becomes more of a boon the better the chances of the property rates to rise over time. Even an area that has a habit of fluctuating up and down can help your property gain steam over time which is often why it’s an attractive prospect in general.
What other requirements are there for a Buy to Let mortgage?
There are also a few bits, personal criteria that you would likely have to pass in order to qualify for Buy to Let mortgage. Remember however that this varies from lender to lender, so you won’t get the same criteria every time. This normally includes being at least twenty-five years of age, having a minimum income of about £25,000 or above, and of course passing your credit check.
To conclude, it can honestly be difficult to apply for a Buy to Let mortgage if you don’t know what you’re getting into. This is why it’s doubly important to speak to your broker about Buy to Let so that you aren’t blindsided by its requirements. This is doubly important for those who want to build a property and then rent it out rather than purchase already existing properties.