A buy-to-let mortgage is a type of loan specifically designed for investors who want to purchase a property to rent out for a profit. These mortgages typically require a higher down payment and have higher interest rates than traditional mortgages. Buy-to-let mortgages come in both fixed and adjustable rate versions, and are usually used to purchase residential properties, although they can also be used to invest in student housing or hotel rooms. The process of obtaining a buy-to-let mortgage is similar to that of a traditional mortgage, but there are some key differences.
For example, most buy-to-let mortgages are interest-only loans, meaning that the borrower only pays the interest on the loan each month, rather than repaying the loan itself. This generally results in lower monthly payments, but the loan must be repaid in full at the end of the term. Additionally, lenders will review the borrower's credit reports and may require a rental statement to demonstrate rental potential. In order to qualify for a buy-to-let mortgage, borrowers must meet certain eligibility criteria, such as having enough savings to cover any potential losses if home prices drop since the time of purchase.
Additionally, the property must meet certain energy efficiency standards, with a minimum EPC rating of E unless an exemption applies. When looking for a buy-to-let mortgage, it is recommended to apply through a broker who specializes in these types of loans. Most big banks and some specialized lenders offer buy-to-let mortgages, so it is important to shop around for the best deals. Two or five year fixed rate money back mortgages are often the most cost effective options.