Should you be venturing into the world of letting property, the chances are you’ve stumbled upon a variety of buy to let mortgage products that could help you secure the property you wish to add to your portfolio.
As with any mortgage though, certain factors are taken into account before you can call the property your own and reap the rewards of such an investment. How much you can borrow depends not only on your finances but also on how much rental income the property will generate. In many cases, this means that lenders will want to see you earning 125% of the monthly mortgage payments through rent.
What is a buy to let mortgage?
Before we dive further into just how much you could borrow, we’ll help you gain a little more understanding of the buy to let mortgage.
A buy to let mortgage is simply the product used to help finance the purchase of a property you are letting. You will not be able to apply for a regular residential mortgage for a property you plan to let. Working on the basis of rental income covering the payments, a buy to let mortgage works a little differently to a standard mortgage. To be approved for a buy to let mortgage, you are also expected to have a form of income outside of this property rental. This gives lenders a little more security should there be any issues with you receiving rent from your tenants and in turn the bank receiving its mortgage payments.
Will a deposit affect how much I can borrow for a buy to let mortgage?
The amount of deposit you put down will not affect how much you can borrow but it may see you get more beneficial interest rates. A fairly standard deposit for buy to let mortgages is approximately 20% of the property value. This can vary between lenders and in some cases can be much higher.
If your rental projections do not cover the mortgage, the lender may request a higher deposit to cover the difference.
What are the criteria for getting a buy to let mortgage?
Along with lenders wanting to see that you will generate enough rental income to cover the costs of the mortgage, they will also want to see that you are on a salary of at least £25,000 per year but the amount of income you need differs from lender to lender and can be lower.
Some lenders may also want you to be under the age of 75 and already own your home either outright or with a mortgage. You’ll also need to be over 18 years of age.
Just like with traditional mortgages, they will want to see you have a decent credit score too.
What is the minimum property value I can buy to get a buy to let mortgage?
Each lender will have its own lending criteria, but each will likely stipulate the minimum value of the property they are willing to lend against. Currently, HSBC, for example, requires that the property you are planning to buy is worth at least £75,000. Some lenders are even as low as £50,000.
What is the maximum I can borrow for a buy to let mortgage?
Much like the minimum amount you can borrow, all lenders will have a maximum too. You’ll commonly see a maximum LTV of 75%, but 85% can be found with some lenders.
How do I pay back what I’ve borrowed for a buy to let mortgage?
Most buy to let mortgages are interest only, so despite you earning a rental income greater than the rent itself, your payments to your lender are for the interest only. Upon the buy to let mortgage ending, you’ll need to pay back the borrowed capital. It may be a good idea to save a portion of the difference between the interest payment and the received rent so you have a lump sum you can put towards the capital debt at the end of the term.
Should your buy to let mortgage not be interest only, you’ll have a set amount to pay each month that eats into the overall debt.
Can I sell the property to clear what I have borrowed on a buy to let mortgage?
You can but you should be aware of any current tenancy agreements. Some cash house buying companies will purchase homes from landlords and keep the tenants in situ allowing you to sell without changing for your tenants. Should the property be vacant, and you think selling may be an option to clear the buy to let mortgage, you could find this makes things complicated. House prices have been inconsistent in the UK for a while now and a rash sale could see you cash in when the market is underperforming. This could mean you have an outstanding balance on the mortgage that you’ll have to pay along with your other outgoings.
Finding out how much you can borrow for a buy to let mortgage can be easy. Many lenders have simple online calculators, but they are filled with preset formulas that won’t necessarily give an accurate result. Speaking to a specialist team of brokers like Mortgage Saving Experts gives you an in depth look at what is available to you. With expert guidance and insight, we can help you find a suitable buy to let mortgage that ensures your venture into property investment starts smoothly.
