This week on the Mortgages, Money and More Podcast, Craig offers his advice on how you can get the best out of your Buy to Let Mortgage.
How does a Buy to Let mortgage work?
A Buy to Let mortgage is a specific type of product for those who want to buy a property with the intention of renting it out. There are many different terms and rules around a Buy to Let mortgage compared to a regular mortgage, for a property the buyer intends to live in.
With a Buy to Let mortgage the anticipated rental income is taken into account when the lender calculates how much you could borrow.
Buy to Let mortgages could suit investors with enough equity to put down a deposit of at least 20% of the value of the property. However, some lenders could require more than that, and the general deposit for a Buy to Let mortgage is 25%.
Your credit record is still scrutinised as with a regular mortgage application and interest rates on Buy to Let mortgages are generally slightly higher than on a regular mortgage.
Should I choose an Interest only or capital repayment mortgage?
Most Buy to Let mortgages are interest only, which means your monthly payment only pays the interest and doesn’t reduce the capital.
If reducing the capital is important to you, you could either arrange a repayment mortgage or make overpayments on your interest only mortgage. Most mortgage products will let you overpay by 10% of the outstanding mortgage balance.
Do I need to switch my Buy to Let mortgage?
If you have a Buy to Let mortgage already and its fixed interest rate term is coming to an end, you should think about switching products or providers to gain a better deal.
Here are some of the other things to look out for, so make sure you examine all of your options – or get a mortgage or finance adviser to help you with this.
- Don’t forget to research any fees and charges around changing your product, as these could be higher than you expected.
- You may be asked about your property’s rental income history to reassure any new lender that you are able to keep up with the monthly mortgage payments.
- Make sure that you have sufficient savings to cover any gaps in rental periods when your property could be unoccupied. Having a cushion of savings to cover any essential repairs is also important.
If you are looking to remortgage your Buy to Let property or thinking about transferring your mortgage to a different provider, our advisers can help you find a product that best suits your needs.
The key things to take away are that many fixed mortgage deals are approaching the end of their term this month, so it’s a good idea to review your Buy to Let mortgage right now. This kind of mortgage comes with different terms and rules than a regular mortgage. It’s important to do your research and understand all of your options.
A financial adviser or mortgage adviser is best placed to help you explore the products and lenders that will suit you best.