Different types of mortgages: Buy-To-Let Mortgages
If you are looking to buy a property to rent out, then a Buy-To-Let mortgage is the way forward. In this article, we’ll go through the key differences of a Buy-To-Let mortgage compared to other mortgages. As well as this, we will go through who can get a Buy-To-Let mortgage, how to apply for one, and how much you are able to borrow.
Who can get a Buy-To-Let mortgage?
Buy-To-Let is accessible to a wide range of people. You can get a Buy-To-Let mortgage if:
- You want to invest in property such as houses or flats
- You already own a home, either outright or with a mortgage
- Your borrowings, debts and general credit record is good
- You earn over £25k a year
- The upper age limit for when a buy-to-let mortgage can end is 75. So you must be able to pay it off before this point
How to apply for a Buy-To-Let mortgage
Firstly, to get a Buy-To-Let mortgage, you will need a bigger deposit than for a residential mortgage. You will normally need a deposit of over 25% of the property value.
You’ll also need to provide all the usual evidence about your earnings and your finances. This includes your:
- Credit history and salary
- Any debts
- How much you’ll make from rent
You might also need the following documents:
- ID, such as a driving licence or passport
- Gas, water or electric bills
- Proof of existing mortgage statement
- Proof of additional income
- P60 form
- Payslips for the last three months, or proof of income and tax returns if you’re self-employed
- Bank statements for the last three to six months
- Proof of your monthly outgoings
- Details of the property you want to buy
Buy-To-Let mortgages and Stamp Duty Surcharge
In England and Northern Ireland, you’ll pay 3% (surcharge) on the standard Stamp Duty rate on any Buy to Let property worth over £40,000 in addition to the Standard Stamp Duty Rate
From 1st October 2021 you’ll pay the following Stamp Duty rates. Check out the latest Government guidelines for the Stamp Duty rates.
Pros and Cons: Buy-to-Let mortgages?
Advantages of Buy-To-Let mortgages
Although the value of your property can go down as well as up, historically property in the long-term has served investors well with an increase in value.
Generate an Income
In most cases, the rent will provide you an additional income. Do ensure, however, you factor in any ongoing costs of the property. Furthermore, check the rental yield for the rate of return before investing.
The rental market is currently very strong with demand at a high. With lack of affordable housing and stricter mortgage underwriting criteria people look to rent as an alternative.
Disadvantages of Buy-To-Let Mortgages
Increased Stamp duty
For many, a Buy-To-Let will be a second property or more if part of a portfolio. In April 2016 the Government introduced a 3% surcharge for any additional property purchase.
Whilst the plan is to have a tenant in the property during its ownership, it is likely that any landlord will experience a period of rental void. Ensure you factor any possible periods of this into your budget.
Non-payment of rent
Having a rental void due to non-occupancy is a budgeting cost many will make allowances for. However, arguably more difficult is the ability to deal with a problematic tenant. This can also be compounded with any legal costs that may be incurred.
Drop in property value
Yes, sadly for some property investors, the value of a property can also go down. In some cases, it may even fall below what you originally purchased it for.
Landlords have a legal duty and legislation can be a nightmare to navigate. Ignorance, however, is no excuse and hefty fines can be imposed if you do not fulfil your legal responsibilities.
How much can I borrow?
Greg Went, a senior product manager at Nationwide, says that “The main difference between a Buy-To-Let mortgage and a residential owner-occupier mortgage is that the mortgage provider will consider the potential rental income when assessing affordability”.
The income for the rental should usually be around 25-30% higher than the mortgage payment.
Most high street lenders offer Buy-To-Let mortgages, and with all the benefits of renting such as additional income, long-term security and being a flexible investment, it’s always worth considering buying to let as your next investment move.
Invest in UK property in 2022 with Closefield Property
If you are looking to invest in property in the UK via the use of a buy-to-let mortgage, our team can not only advise you on how to get started but can help you find the best property to invest in.
At Closefield Property, we leverage the knowledge, connections, and resources that we’ve built over the years to help our clients benefit from property investment. If you are looking to enter the property investment market or to simply grow your property portfolio, book a call with us today