The housing market and the mortgage market have both changed quite considerably over recent years, property, however, still remains a brilliant investment. There are lots of different ways you can invest in property and the most popular is becoming a landlord. Purchasing a property and then letting it out to tenants is a great way to earn additional income and the more properties you own, the more you can earn. Whether you’re completely new to being a landlord or you’re keen to build a portfolio of rental properties, there are a few important things you need to know when getting a buy-to-let mortgage.
Obtaining a mortgage usually takes 4 to 6 weeks
When you are buying a rental property, you may have tight time constraints and struggle to get the mortgage you require to make the purchase in time. Generally speaking, getting a buy-to-let mortgage offer takes between 2 and 3 weeks, and then you need to get the usual legal work done.
If you plan on going to an auction to buy your property, you will usually be asked to exchange contracts in 4 weeks, which is a tight timescale if you need a mortgage. It may be worth considering an interim bridging loan if you need quick access to funds and this could help you purchase the rental property you’re interested in.
Several factors will be taken into account by lenders
Buying a home to live in and getting a residential mortgage is often more straightforward than getting a buy-to-let mortgage. As a rental property is an investment, mortgage lenders take into consideration several additional factors before deciding whether they’re willing to lend to you and if they are, how much.
Net rental income is really important when you’re trying to get a buy-to-let mortgage and it’s something all lenders take into account. However, all mortgage providers now also want to ensure that you will be earning enough to make the payments if your tenant can’t. This means that all your own income and expenditure will also be considered in the underwriting process.
You may need a higher deposit
As you may expect, borrowing for a property investment is different from borrowing money for your own home, and you will need a higher deposit for a buy-to-let purchase. Most residential mortgages will require a 5% deposit as a minimum, whereas buy-to-let mortgages usually require anywhere between a 25% and 40% deposit, depending on the purchase price and rental income achievable. This is due to the rental “stress test” lenders apply.
The bigger the deposit, the better when it comes to buy to let.
Most lenders have different rates for buy-to-let mortgages
Lenders generally charge more for buy to let mortgages than residential mortgages, as they are considered to be more of a risk.
To help ensure the investment you make is as profitable as possible, these days you may want to consider other available options. For example, you could remortgage your own home and use the cash to become a cash buyer for your new rental property.
What about the tax?
There is an additional 3% Stamp Duty to pay when you are buying a property to let out and the income you receive in rent is subject to tax. You are, however, allowed to deduct certain expenses from the tax payable. Another consideration is whether to buy the property in your sole name or to buy it in the name of a Limited Company. This is something which you should take advice from an Accountant on, as it depends on your own individual tax position which is right for you
Getting a buy-to-let mortgage
If you’re interested in becoming a landlord and you’re trying to find a good buy-to-let mortgage, this is something our team at Mortgage Required can assist you with. Since being established back in 2001, we have been providing tailored mortgage advice to everyone from first time buyers, first time landlords, and seasoned property professionals. We are available to advise on all aspects of the mortgage market and no matter what your individual circumstances may be, we will help you find the best mortgage offer. We pride ourselves on delivering first-class customer service and there is no better company to turn to for assistance with a buy-to-let mortgage.
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