More and more business-minded people are showing interest in the buy-to-let mortgage. For first-timers, you can check an online conveyancing comparison tool to know more about the different buy-to-let mortgage properties available in the market. For old-timers, the same comparison tool can be used to remortgage your existing buy-to-let property.
So why should you invest in a buy-to-let mortgage? Here are simple guides to understand how buy-to-let mortgages work:
Earn from Mortgage
A buy-to-let mortgage is the lending scheme wherein you can borrow money and use it to purchase a property. Then, you can have the said property rented out. What’s good about this financial solution is that with the growing rental demands in the U.K., it offers a unique way to invest in property even during a time when the stock market is unstable. Plus, it serves as a source of income.
High Deposit, Low LTV
Since this scheme is also considered as business, it poses a greater risk to the lenders. As such, the deposit for a buy-to-let mortgage is higher compared to a residential mortgage, ranging between 20 and 40% depending on the lender. This also translates to lower loan-to-value (LTV) ratio with a buy-to-let mortgage compared to a straight-up residential mortgage. But beware not to get a residential mortgage and then rent it out – you’ll be committing mortgage fraud.
Interest Only Mortgage
For lower monthly repayment options, you can choose the interest-only mortgage scheme, which is no longer available for the residential market. Long-time landlords often prefer to have this option simply because they get more money from the rental, which they can use as show-money for an additional buy-to-let mortgage. Plus, this can be used as a claim for tax relief.
Unless the property you target via a buy-to-let mortgage is affordable, then it won’t be approved. Most lenders have a straightforward computation – the annual rental income for the property must be equal to or more than 125% of the annual mortgage payment. This is to ensure that you will be able to pay the mortgage while also getting additional income from the rental.