Buy to let mortgages differ significantly from their conventional cousins. Firstly, lenders won’t take you onto their books unless any expected rental income you earn is at least 125% of your mortgage repayment. So if the home loan sets you back £1,000 a month, you need to be able to prove you can rent the property for at least £1,250 a month. Most lenders will calculate this on an assumed rate higher than its standard variable rate (SVR). Some, however, might show you some leeway and base the calculation not on its SVR but what you’d pay if you were on an introductory or discounted deal. This will ensure a lower monthly rent is required and beef up your borrowing power.
At the moment, many lenders also want to see proof that you can afford the loan even if you don’t have tenants. So, unlike in the past, you may be required to give information on your income from sources other than property.
You’ll also need a significant deposit. While in theory you can get a buy to let mortgage with a 15% down payment, the reality is that you’ll need at least 25%. Lenders are also more cautious about the types of properties they lend on – new build flats may require a higher deposit.
Rates aren’t too bad, however they are slightly higher than for standard residential properties. Fees will be quite steep though – put aside at least 1% of the purchase price for your mortgage fees.
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