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Are Buy-to-Let Mortgages More Expensive?

Buy To Let mortgages tend to be more expensive than regular mortgages due to higher interest rates and product fees. Learn more about BTL mortgages here.

Are Buy-to-Let Mortgages More Expensive?

Buy-to-rent mortgages are a lot like regular mortgages, but with a few key differences. Rates tend to be much higher and the minimum deposit for a purchase-to-rent mortgage is usually 25% of the value of the property (although it can range from 20 to 40%). It's generally cheaper to get a residential mortgage than a buy-for-rent mortgage; interest rates tend to be lower, as are product fees, because lenders consider buy-to-rent properties to be more risky. These mortgages are usually your lender's default plan and are what you'll normally spend on once your other offers expire.

These tend to be some of the most expensive mortgage offers on offer, with the highest interest rates, so if you have an SVR, it's a good idea to find a better deal. The rate can also change at any time at the whim of your lender. One of the only advantages of an SVR is that you can find a better deal without incurring exit costs. The initial fees on purchase-to-rent mortgages are usually significantly higher than those of standard residential offers, with figures of 1,999 pounds sterling not uncommon. Some lenders charge fixed fees, while others charge percentages of the amount borrowed, for example, 0.5% of the loan.

For example, some lenders will set a maximum number of properties you can have in your portfolio (most commonly up to 10) and others use different CRIs and representative interest rates depending on the number of properties you have. Some lenders will give you a “consent to rent” your current offer, while others may insist that you switch to a buy-to-rent mortgage. The typical loan-to-value (LTV) ratio (LTV) of a purchase-to-rent mortgage is 75 to 80%, which means that most BTL lenders will ask you to deposit a minimum of 20 to 25% of the value of the property as a mortgage deposit. That said, fewer providers are known to approve customers with lower deposits of just 15%, under the right circumstances. A purchase-to-rent mortgage is a secured mortgage on a property that has been purchased or is being purchased for the sole reason of renting it to tenants. In the past, owning a buy-to-rent property seemed to be reserved for professional landlords, but now landlords come from all walks of life and from diverse professions.

Moneyfacts figures show that more than 40 percent of available mortgages were withdrawn in immediate response to the mini-budget. While it's quite possible to get a purchase-to-rent mortgage with some types of bad credit in your name, having adverse credit of any kind could limit the number of lenders available and the number of products you qualify for. When you buy a property as an investment, you won't be able to finance your purchase with a normal residential mortgage. If you want to invest in a property and become a homeowner, but don't have enough capital to buy a property outright, you'll need a buy-to-rent mortgage. If you are re-mortgaging a purchase-to-rent property, your lawyer will contact your current lender to transfer your mortgage to your new lender. While there are buy-to-rent mortgage lenders that don't have a strict limit on the maximum amount you can borrow, the affordability assessments are still strict and you're unlikely to approve them without a rental income forecast from an ARLA-regulated leasing agent.

BTL mortgage providers that impose this restriction do not usually lend to anyone earning less than £25,000 from other sources. Some residential mortgage lenders will grant you permission to sublet all or part of your home for a specified period of time, but it's vitally important that you apply for their permission before continuing with this. It may be more difficult to get a purchase-to-rent mortgage when buying for the first time, but it's not impossible at all. There is no guarantee that it will be possible to organize the ongoing rental of the property, nor that the rental income will be sufficient to cover the cost of the mortgage. Most homeowners will pay for this by selling the property, although if home prices have dropped since the time you bought the property, you'll have a hard time paying the mortgage. Most lenders like to see a projected rental return of at least 125% before they are willing to offer a BTL mortgage, and they will assess if a property meets this requirement by performing a stress test.

If you buy a property to rent it out, you won't be able to finance it with a traditional residential mortgage. Buy-to-rent mortgages are designed for borrowers who buy or remortgage a residential investment property who are already occupying their own home, with or without a mortgage.

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