Investing in property can be a great way to generate income and build wealth. But if you don't have enough capital to buy a property outright, you'll need a buy-to-let mortgage. In the UK, 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%). Most BTL mortgages have only interest.
Applying for a purchase-to-rent mortgage isn't as easy as getting a standard residential mortgage. If you're a foreign resident, you may find it difficult to get a buy-to-let mortgage. Lenders often view expatriates as high-risk due to the fact that the applicant lives in a different country. However, some lenders may still grant loans to foreign applicants in cases where applicants are at low risk. 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. To get a mortgage on an investment property, you'll generally need a deposit of at least 20-25% of the value of the home.
As with standard residential mortgages, the higher the deposit you deposit, the better the rate you can get. The best buy-to-rent offers are often available to investors with deposits of 40% or more. Your bank will review your mortgage application based on the purchase-to-rent criteria. These vary by lender, but include things like age restrictions and a minimum annual income (normally around £25,000). You may want to reach an agreement in principle before starting your purchase-to-rent mortgage application. This tells you how much a bank might be willing to lend you, without affecting your credit rating.
Location is an important factor when it comes to affordability and rental performance. Here are some of the best buying and renting areas in the UK and the 10 areas with the highest rental returns if location isn't an issue in your property search. A purchase-to-rent mortgage deposit is typically around 25 percent of the value of the property and is generally higher than the five to 10 percent deposit needed for the home you plan to live in. 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. It may be more difficult to get a purchase-to-rent mortgage if you're buying for the first time, but it's not impossible at all. A lender would normally expect you to be able to repay the loan on a residential basis. 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. While it's not impossible to get a purchase-to-rent mortgage with a poor credit history, it does prevent many applicants from stopping each year.
This is largely because they submit their applications without first consulting a mortgage broker, and many lenders won't accept those with anything less than a squeaky-clean record. The material that has been used to build the property can also have a major impact on whether or not a mortgage is available. Banks will look at the amount of rental income you are likely to get from the property when deciding whether to approve your mortgage application. A follow-up mortgage has variable rates, meaning that your monthly interest payments can go up or down. A mortgage broker knows this and, more importantly, knows who will accept those who have had previous credit problems. Lenders are more concerned about whether or not their rental income will be enough to cover their mortgage. Finding the right mortgage can be confusing, as each lender has different buying criteria for renting.
Talk to a lender to see if you can establish an agreement of principle (AIP) or a mortgage in principle (MIP). However, this doesn't mean that a 65-year-old can easily go to a mortgage provider and apply for a purchase-to-rent mortgage. Once you end your interest-only mortgage agreement, you are expected to pay the cost of the property at the time you purchased it. Money Facts has a buy-to-let calculator that calculates the expected return on rent so you can see how much return you could get before applying for a buy-to-let mortgage. When evaluating how much you can borrow for a buy-to-let mortgage, a critical element is the rental value of the property. There are other methods of obtaining financing, but a buy-to-let mortgage is probably out of the question.
Business purchase-to-rent mortgages represent a relatively small percentage of the market, but the numbers have been increasing in recent years. Martin is an experienced senior mortgage consultant who has earned his CeMAP degree for more than 15 years and completed an MBA in Global Banking & Finance.
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