Get the right mortgage deal

Our straightforward guide will help you pick the home loan that’s best for you.

Buy-to-let mortgages

The rise of buy-to-let

With house prices soaring, buying additional properties to rent out has become increasingly popular. In order to fund these deals, most people take out a buy-to-let mortgage. The basic idea is that the rental income should cover the cost of the mortgage and any maintenance costs, so that the buy-to-let investor will make the majority of their profit from any increase in house prices.

In most respects, taking out a buy-to-let mortgage is just like taking a mortgage on your main home. Most lenders offer buy-to-let mortgages and interest rates have become increasingly competitive in recent years and are now almost as cheap as those offered on ordinary mortgages. You can even remortgage a buy-to-let property to take advantage of special offers given to new customers.

There are some key differences however, as we describe below.

Interest-only deals

Most buy-to-let mortgages are interest-only mortgages rather than repayment ones. This is because buy-to-let mortgages are usually paid off using the sale proceeds of the property in question.

Deposits

A larger deposit is also required than with an ordinary mortgage. Typically, a deposit of 20% of the purchase price is required although some buy-to-let lenders are now accepting smaller amounts.

Rental cover

With an ordinary mortgage, your mortgage lender will assess your salary to see if you can afford the home you want. With a buy-to-let mortgage, the likely rental value will be assessed to see if it covers the necessary mortgage payments. Usually, a lender will insist that the rental income covers at least 125% of the mortgage costs.

Tax

Tax is something you need to consider with regards to buy-to-let. Rental income is taxable, although you may be able to offset mortgage interest costs, agents’ fees and other expenses. You may also be subject to capital gains tax on any profit you make when you come to sell a buy-to-let property.