It’s a well-known fact that having your own home is a sign of financial security. Like many things, however, you need to pay for it first. Most people can’t afford to pay for a house out of their pockets, so the next best option is to get a mortgage. In the UK, buy-to-let mortgages are among these options.
A buy-to-let mortgage is a special kind of loan that you can use to buy property as an investment. You will use the money you borrow from the bank to buy a house or other property that you can then rent out to tenants. The rent you receive will cover your mortgage payments while you can keep the rest of the money. These properties can be any building, from a flat in a mansion to an apartment above a shop.
If you’re thinking of applying for a buy-to-let mortgage, this article will help you understand better.
How Buy-to-Let Mortgages Work
When you apply for a mortgage loan, the bank will look at how much money you earn and your overall financial situation. As an investor, the bank will also consider the potential income from the property and how stable you are as a tenant. The bank can then decide whether or not to give you a mortgage.
A buy-to-let mortgage is a bit different. Buy-to-let mortgages enable investors to use their own money to invest in property. They are typically more expensive than other mortgages, and they will usually have a slightly different interest rate. These properties are rented out, and your income from this rental helps you pay the loan.
Types of Buy-to-Let Mortgages
There are two types of buy-to-let mortgages that you can use. These are:
Standard Buy-to-Let Property
This is a traditional loan product that you can use to fund a property to be rented out. It pays back a monthly amount that you can use to cover your monthly expenses, including your monthly mortgage payment. This helps you repay the loan faster and in a shorter time. You can typically borrow money for up to 125% of the rental income, though it could be as high as 145%.
Multi-Let Property
Also known as a House of Multiple Occupation (HMO) property, this is a property that consists of multiple units rented to different tenants. These are typically houses or buildings with a large number of tenants. They are similar to a standard buy-to-let property, but they are slightly riskier for the lender. This is because the multiple tenants can cause varying damage levels, which can be expensive to repair.
How to Get a Buy-to-Let Mortgage
If you’re interested in applying for a buy-to-let mortgage, you need to make sure that you fulfil the bank’s requirements. This means that you’ll need to answer some questions about your finances and your plans for the property. If the bank feels that you are stable and responsible enough to make their loan, it will lend to you.
Furthermore, if you’re an investor, the bank will also consider whether or not the property you are buying is in good condition. You might not have enough cash to do all the work it needs on its own, so the bank might not give you the total amount you need. They are more willing to lend you the money if you work with a building contractor and follow through with the work on your property.
How Much Deposit Is Needed for a Buy-to-Let Property?
The amount you need to get a buy-to-let property depends on what you will use it for. If your property is a standard buy-to-let property, you’ll need to put down at least 5% of the total purchase price. If it’s an HMO property, you’ll need 25%.
Is It Possible to Get It with Bad Credit?
If you have bad credit, you can get a buy-to-let mortgage. The bank will look at the total amount you owe rather than the amount you have delinquent payments. However, if you have bad credit because of late payments and unpaid bills, you should not try and get a buy-to-let mortgage. They won’t give you a loan because of the potentially high risk you pose, which means that you need to make some changes before you get a mortgage.
Conclusion
The UK has various mortgage options for people who want to buy a home. You have even more options as an investor due to the high demand for buy-to-let properties. Different buy-to-let mortgages are available, and they can be given to investors as long as they meet the bank’s requirements.
If you’re looking for mortgage brokers in Chester, A Move Brokers can help you! We understand our clients’ financial circumstances, so we provide comprehensive mortgage solutions to get you closer to your dream home coupled with fair rates and terms. Reach out today for a free consultation!
*This article is for information only and should not be seen as advice or a recommendation to act. As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.