Buy to Let mortgages are for people who wish to purchase a property and rent it out rather than reside in it themselves. The amount you can borrow for a Buy to Let mortgage is based on the amount of rent you expect to receive, but lenders will take your income and personal circumstances into consideration too.
They must also apply a ‘stress test’ so that they can ensure you would be able to afford higher mortgage rates in the future.
What else do you need to know?
The size of your deposit or the level of equity you have in your property will dictate the range of mortgage deals available to you. Those with larger deposits are usually offered the best rates by lenders as they are generally considered lower risk.
How does a buy to let work?
A buy to let mortgage is a loan that is secured against a property that you own and intend to rent out to a tenant.
As with a normal residential mortgage, the onus is on you to meet the mortgage repayments each month. The significant difference with a buy to let mortgage is that the amount you can borrow is based upon how much rent the property can generate as opposed to your income.
The rental income should generally cover the cost of the mortgage and potentially allow for some surplus.
How do I choose a buy to let property?
You may have a town or city that is local to you in mind for your buy to let property. Some places in the UK are more profitable than others. We recommend all applicants do their research around where to buy.
What is the difference between a BTL mortgage and a standard residential mortgage?
A BTL mortgage is mainly assessed on the profitability of the property the mortgage shall be secured on. Most BTL lenders will require a borrower has a minimum income usually £20,000-£25,000 per annum to be considered for a BTL mortgage. A BTL mortgage allows you to rent out your property to tenants whereas you are not allowed to do this with a residential mortgage.
Typically, interest rates associated with BTL mortgages are higher than those of residential mortgages. A larger deposit is required for a BTL this is usually around 25%.
What is APRC?
APRC stands for Annual Percentage Rate of Charge.
When choosing a mortgage, you must understand the different rates that were quoted to enable you to identify how much each deal will cost you.
The Mortgage Credit Directive (MCD) rules were introduced by the European Union as a means to standardise regulations for home financing across the EU and therefore, any mortgage quotes that you are shown must include what is referred to as an ‘Annual Percentage Rate of Charge,’ or more commonly, the APRC.
What does the APRC show?
The APRC informs you just how much your mortgage will cost you each year, assuming you kept it for the full term. It considers the standard variable rate after any special deal period finishes, and the initial rate you will pay, as well as any associated mortgage costs such as an arrangement fee.
The APRC is typically shown alongside multiple rates so that you have a clear understanding of how much you will pay at each stage of your mortgage, and in total.
As an example, if you search for a five-year fixed-rate mortgage, any deals you find should state the initial rate which is the rate during the five-year fixed period. It should then provide the variable rate that you will move onto once the five-year deal finishes, as well as the APRC which is the overall cost for comparison.