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Do You Need a Different Mortgage for Buy-to-Let?

Are considering investing in rental properties? Learn about what type of mortgages are available for buying rental properties and how they differ from regular mortgages.

Do You Need a Different Mortgage for Buy-to-Let?

Are you considering investing in a property and renting it out? If so, you may be wondering if you need a different mortgage for buy-to-let. The answer is yes, you do need a specialized buy-to-rent mortgage if you want to rent out a property. 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 is usually 25% of the value of the property (although it can range from 20 to 40%).If you're buying a property to rent, you'll need to take out a buy-to-rent mortgage instead of a standard residential mortgage.

Residential mortgages are only intended for homeowners and occupants. If you buy a property with a residential mortgage but rent it out, you are likely in breach of the terms of your contract and that fees may be imposed or even asked to repay your loan early. It's important to note that even if you plan to rent the property to friends or family, you'll need a buy-to-rent mortgage instead of a standard residential mortgage. However, many mortgage providers are not interested in family rentals and different loan terms may apply. If this is what you plan to do, it's a good idea to seek professional advice.

The short answer to the question is, yes, you can rent a property without a buy-to-rent mortgage. But only if you are the full owner of the property. If you still have a residential mortgage, you can't rent your home. And you certainly can't buy a rental property with a residential mortgage. If you are planning to rent your home, you need a buy-to-rent mortgage.

You can only get a standard residential mortgage if you plan to live in the property yourself. There are some key differences between purchase-to-rent mortgages and ordinary mortgages that could make it difficult to buy a property for rental purposes. When you buy a property as an investment, you won't be able to finance your purchase with a normal residential mortgage. Instead, you'll need a specialized buy-to-rent mortgage. Lenders tend to consider purchase-to-rent mortgages to be a greater risk because of the income deficit that can occur if you have problems renting your property or if your tenants don't pay rent. Therefore, your eligibility evaluations may be more difficult.

In addition, rent payments can be higher than mortgage payments, so lenders are concerned that you might not be able to pay your purchase-to-rent payments, especially if your tenant was late in paying rent. Standard home insurance won't cover you against the risks associated with renting a property to residential tenants. Specialized homeowners insurance policies are available for these scenarios and your broker can advise you on which one to choose. If you have a residential mortgage but want to switch to a buy-to-rent one, you'll need your lender's consent. If your current lender refuses, then a new mortgage may be an option with an entirely new lender. This may result in early repayment fees, depending on the term of your mortgage. A purchase-to-rent mortgage is very different from the mortgage you might have for your own home.

To begin with, the amount you can borrow depends largely on the rental income you expect to get from the property, although we may consider other income you receive in some circumstances. As a guide, many lenders specify that your rental income should be 25 to 45% higher than your mortgage payment. The terms of eligibility may also be different. Take a look at our purchase-to-rent mortgage eligibility conditions. This happens when you exchange the mortgage on an existing property for a purchase-to-rent mortgage and, at the same time, free up capital that you can use as a deposit to buy a new home. Whether or not you can rent your property to family members depends on your lender; you may need to apply for a family mortgage specializing in buy-to-rent.

Or they make the conscious decision to buy an investment property in a buy-to-rent mortgage with a view to renting it out. This is because purchase-to-rent mortgages are generally only granted to people who have at least one 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. Before a lender agrees to change your mortgage, they will perform a thorough affordability evaluation to ensure that you are a reliable borrower and that you can afford your purchase-to-rent mortgage. When it comes to converting your mortgage, you may be able to switch to a buy-for-rent offer with your current mortgage provider, or you may re-mortgage for a new offer with another lender. This means that, at the end of the mortgage term, you'll continue to owe the amount you originally borrowed and will continue being charged interest on the entire balance every month until it's repaid. This can be good news in the short term since it allows minimizing costs.

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