What is a buy-to-let mortgage?
A buy-to-let mortgage allows you to purchase or refinance a property that you let to tenants.
These mortgages are designed for residential properties. If you are looking to let a property to business tenants, you will require a commercial mortgage.
You can either take out a buy-to-let mortgage as an individual or through a limited company.
How does a buy-to-let mortgage work?
A buy-to-let mortgage allows you to borrow money to purchase a property you intend to let out to tenants, and not occupy yourself.
Or you can take out a buy-to-let mortgage to refinance an existing property – perhaps where you are currently living but plan to move out from and rent it to tenants. You may also look to refinance an existing BTL property and release equity for renovations or to increase your portfolio.
Buy-to-let mortgages can be capital repayment or interest-only. Many landlords chose the interest-only option meaning they only pay interest on the loan and not the capital amount. The benefit of this is lower monthly repayments, meaning more cash is available for income or can be set aside to cover general maintenance and repairs.
The rent you receive should be higher than the mortgage repayments, so you are making a regular cash profit.
You pay off the mortgage by either selling the property in the future, refinancing to another lender, or paying off the loan in cash.
You can either take out a buy-to-let mortgage as an individual, or through a limited company. This means the mortgage will not be in your own name, but in the name of your business.
How much can I borrow through a buy-to-let mortgage?
The amount you can borrow will be linked to the value of the property, the rental income you expect to receive or are already receiving, as well as the size of your deposit.
Lenders will require a deposit of at least 25% but likely more.
They will also typically require the rental income to be at least 25% higher than your mortgage payment. If you do not meet this criteria, you would need to put down a higher deposit to reduce your monthly repayments.