Matthews IFA Ltd
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Could you become a landlord?

Well, if you're thinking about becoming a landlord or renting out your home, the important bits you need to know about buy-to-let mortgages are described below.

Buy-to-let mortgages are a way of getting a home loan for a property you are renting out.

Like with a standard mortgage, the lender offers a loan secured on the value of the property you are either buying or already have.

You can take out fixed, tracker or variable-rate buy-to-let mortgages as with standard mortgages. One difference is that many buy-to-let mortgages are interest-only, rather than repayment mortgages.

This makes the loans cheaper, and you can often offset the payment against your tax bill. However, it also means the size of the loan never decreases.

But, unlike a standard mortgage, rather than deciding how much you can borrow based on your income, buy-to-let mortgage lenders look at the potential rental value of the home instead.

Can you get a buy-to-let mortgage?

There are often more restrictions on buy-to-let mortgages than on standard home loans.

For example, many lenders specify you must be over the age of 25, they require larger deposits than many standard mortgages – generally of at least a quarter of the value of the home - and have a slightly higher interest rates (although the best buy to let mortgages have rates under 2% right now).

Most buy-to-let mortgage providers specify that the expected rental income of the property must be equal to at least 125% of the cost of the mortgage (calculated at a nominal rate of between 5% and 6%), to cover any fallow periods when the home is without tenants.

Lenders also frequently require you to have a minimum income as well as looking at the rental value of the home – this is generally £20,000 to £25,000 a year.

Other restrictions include limits on the number of buy-to-let mortgages you can take out with the same lender (generally three) and the total amount you can borrow across them.

If you meet these requirements and have the money for a deposit, you should be able to take out a buy-to-let mortgage.

If you have been thinking about investing in a buy-to-let property, why not give us a call, and we would be happy to discuss your options?

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