Understanding buy-to-let mortgages

August 18, 2014 by Brendan

Advice & Tips

Anyone who buys a property with the intention of renting it out will need to take on a buy-to-let mortgage, unless they are fortunate enough to have all of the money they need to buy the house outright.

Generally, a buy-to-let mortgage is more expensive than an ordinary mortgage, and this is because there is a greater degree of risk for the lender.

That risk stems from the fact that landlords may go through long periods without any tenants or with leaseholders who fail to pay their rent. This could place them in a position where they are unable to meet their mortgage payments.

Interest rates are typically 1 to 2 percent higher for a buy-to-let mortgage than an ordinary mortgage, which applies to both tracker and fixed-rate deals. Lenders may impose letting conditions and could take into account the value of your rent when deciding what deal to offer you.

As well as having higher interest rates, buy-to-let mortgages also require larger deposits, which may start from around 15% for the less competitive deals, along with higher set up fees. Better deals are available for those who can stump up a deposit of at least 25%. Low loan to value mortgages, in which 60% or less of the property’s value is borrowed, tend to offer the best deals of all.

As the buy-to-let field is so complex, it may be wise to consult a qualified adviser who has CeMAP training in order to make sure that you end up with the right mortgage.