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What Is A Buy To Let
The initial main difference between a Buy To Let mortgage and a Residential Mortgage is that Buy To Let mortgages are for a property where you have the intention of renting the property out to a tenant.
This is most commonly done via an Assured Shorthold Tenancy Agreement. This type of agreement is also referred to as an "AST" or "Shorthold Tenancy".
Assured Shorthold Tenancy agreements are normally arranged for a six month period, but can be agreed for a longer period, e.g. twelve months. This type of tenancy allows the tenant to remain in the property for the first six months, or the initial fixed period.
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Types Of Mortgage
Buy To Let is probably the main type of mortgage you hear about in this sector but you will also hear the term “Consumer Buy To Let Mortgage”. This type of mortgage refers to someone who has become an 'accidental landlord' (i.e you need to let out a former home, or you’ve inherited a property you didn’t obtain with the intention to let it out.)
Both types of Buy To Let mortgages differ from Traditional Mortgages. The first thing you will notice is that you will be required to provide a higher deposit within the Buy To Let world. Typically, this needs to be a deposit of 25% of the property value.
The second thing you will see is that lenders apply a differing structure to the way that they calculate the maximum lending. It is usually the lower of two calculations. They will apply a calculation based upon the monthly rent that you will receive. (a typical example could be that your rent needs to equate to 145% of the mortgage cost based upon an assumption that the interest rate was 5%). It's important to note that each lender has their own interpretation of this calculation.
Thirdly, they will have a maximum loan to value that they will lend, as noted above this may be 75% of the property value. Having completed both calculations you will find that some lenders lend the lower of the two calculations. Your adviser will be available to confirm this detail when they discuss your needs.
You will probably see that the interest rates charged in the buy to let mortgage market tend to be higher than those charged for a residential mortgage and you may notice a difference of around 1% or 2%. This is usually because lenders see buy to let properties to be a higher risk to them than a property you are going to live in yourself. A tenant might not look after the property the same way as a person who owns and lives in the property. You may also find yourself in a situation where the monthly rent does not cover the monthly mortgage costs for one reason or another. Things to note are:
Mortgage lenders often apply additional conditions on a buy to let mortgage.
You may need to be a current homeowner.
Some lenders will not lend to 1st-time landlords.
You may have to have reached a minimum age.
There may a restriction on the number of bedrooms or floors in the property.
The property will need to be in a suitable condition for letting.
Buy To Let Mortgages can feel like a minefield to navigate through which is why we pride ourselves on our expert advice enabling new and existing landlords to make your money work harder for you. If you are looking the best Buy To Let mortgage rates, you're looking at getting into the rental market or are looking to expand your existing property portfolio please feel free to get in touch with us today to see how we can help.