When it comes to investing in property, buy-to-let mortgages are a popular option. But what exactly is a buy-to-let mortgage and how does it differ from a residential mortgage? In this article, we'll explore the key differences between buy-to-let mortgages and residential mortgages, as well as the fees and requirements associated with them. The fees associated with buy-to-let mortgages are usually much higher than those of residential mortgages. Interest rates tend to be higher, as do product fees, since lenders consider purchase-to-rent properties to be more risky. As such, you'll need to pay a larger deposit for a buy-to-let mortgage - usually a minimum of 25% of the total value of the property.
This may vary depending on the lender and the type of mortgage, but some of the best mortgage rates available require a deposit of up to 40%. Other fees associated with buy-to-rent mortgages can also be higher, with processing fees reaching 3.5% of the value of the property. The initial fees on purchase-to-rent mortgages tend to be significantly higher than those of standard residential offers, with figures of £1,999 not uncommon. Lenders set interest rates taking into account the business proposition and the increased risk. While there isn't a big difference, the purchase rate with option to rent will be higher. Lender termination fees vary widely and can be up to 3% of the loan in some cases.
Most buy-to-rent mortgages in the UK only pay interest, and the landlord pays the monthly interest with rental income. A series of tax changes, including cuts to the tax relief on mortgage interest and the 3% surcharge on purchase-to-rent stamp taxes, have led many homeowners to decide to refinance their portfolios rather than increase them. To find one of these lenders, it's best to apply through a purchase-to-rent mortgage broker who knows the market. If you need to apply for a buy-to-rent mortgage to buy your first investment property, most experts recommend that you wait until you've owned your first residential property for at least six months, as that will mean that you'll have a wider group of lenders to choose from. 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. We can introduce you to a rental purchase specialist who will discuss all your real estate investment options with you. One of the most common reasons to remortgage for rent is to buy an additional property and use the capital of the first as a deposit for the second. It is also recommended to apply through a broker that specializes in purchase-to-rent mortgages, as their knowledge, experience and contacts with lenders can increase your chances of getting the most cost effective offer.
When evaluating how much you can borrow for a buy-to-rent mortgage, a critical element is the rental value of the property. Then, you'll need to find a mortgage lender that buys to rent with no minimum income requirements when it comes to personal earnings. 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. For example, when applying for a purchase-to-rent mortgage, you'll need a higher deposit - typically around 25% of the value of the property - and interest rates tend to be higher. When you become a homeowner, you need to have specialized insurance because purchase-to-rent properties are not covered by normal home insurance. Buy-to-rent properties come in all shapes and sizes - from houses to apartments and everything in between - so it's important that you understand all regulations before making an investment.
Because of these regulations, it's not as simple as buying for average rent, so it's important that you seek professional advice about your mortgage. Finally, most purchase-to-rent mortgages are not regulated by the Financial Conduct Authority (FCA), unlike residential mortgages. This means that it's important that you do your research before taking out any kind of loan.