A buy to let mortgage is a loan for purchasing or refinancing residential property which is let to tenants rather than lived in by the borrower. Classed as a business transaction, rates and fees are typically higher than those you would find with a standard residential mortgage. You’ll need a larger deposit too – the maximum you can borrow is 85% loan to value although there are many more rates available at 75% LTV.
What are the risks?
Property investment can be a very effective way of generating income if managed correctly, however it doesn’t come without its risks.
Property investors typically rely on their rental income to repay their mortgage, so if a landlord is unable to secure a tenant and the property is left unoccupied there is a chance they won’t be able to keep up with their mortgage repayments, meaning the property could be repossessed.
A void period is not the only risk that needs to be considered by those looking to go into property investment; major repairs could increase overall costs and of course the housing market on its own can have a huge impact on an investors’ potential profit margin.
What is the borrowing criteria?
Unlike residential mortgages which are calculated on the basis of the applicant’s salary, buy to let mortgages operate differently. The mortgage lender applies a rent to interest (RTI) cover calculation, meaning the borrower must be able to prove they can obtain enough rental income from the tenant to cover the interest on the mortgage. RTI cover amounts vary between lenders, however the rental income usually has to be between 125% and 130% of the monthly mortgage repayment. A large proportion of lenders also require a minimum income, from employment, of £25k per annum in addition to the income made from rent.
Like any other mortgage, the borrower must put up a deposit for the property. Currently buy to let mortgages are available up to 85% loan to value (LTV), meaning the borrower would have to put up a deposit of 15%. However, 75% LTV is a more realistically achievable figure.
As far as age restrictions are concerned most buy to let mortgage lenders impose a maximum age of 75 on maturity of the loan, however there are a small selection of specialist lenders that extend this to 85 years.
Why use Black Swan?
An important thing to understand is that when you receive mortgage advice from a Black Swan qualified broker, they have a duty of care to you. They have to recommend a suitable mortgage and be able to justify why the particular mortgage they have chosen is right for you.
At Black Swan, we are in the privileged position of being able to access exclusive and semi-exclusive buy to let products that are only available via a limited number of intermediaries including ourselves.