Buy-to-let mortgages let landlords borrow money to buy properties to rent out. However, at a time when there are fewer mortgages available as a result of the credit crunch and lending criteria is stricter, uSwitch can still help you find the right buy-to-let mortgage.
What are buy-to-let mortgages?
More than 1 million people have buy-to-let mortgages on properties they rent out. Buy-to-let mortgages work like standard mortgages and allow people to borrow money to buy and rent out properties.
Landlords can use a buy-to-let mortgage to buy rental property and - unlike standard mortgages - lenders take potential rental income into account when deciding how much to lend.
How do buy-to-let mortgages work?
Unlike a standard mortgage, with a buy-to-let-mortgage, lenders take your income into account as well as a percentage of the rental income you will get from letting the property.
Buy-to-let mortgages tend to be on an interest-only basis, which means that repayments will not go towards repaying the loan and at the end of the buy-to-let mortgage, it is the cash from the sale of the property that covers the outstanding amount.
Buy-to-let mortgages are available as fixed, discounted and tracker deals and arrangement fees are normally around 1.5 to 2 per cent of the mortgage.
You will need a larger deposit for a buy-to-let mortgage than a standard mortgage, due to the higher risk.
What has the impact of the credit crunch been on buy-to-let mortgages?
As a result of the global credit crisis there is less money available for borrowers and fewer buy-to-let mortgages on offer.
Interest rates are higher, larger deposits are required and lending criteria has been tightened in recent months, for example, by requiring a larger excess of rent over mortgage payments.
Tips for buy-to-let landlords.
- Be careful as buy-to-let mortgages are risky - find the best property you can in the best location and choose a property that will be attractive to the rental market in that area.
- You need to make sure you can cover all the costs of renting out the property and maintaining it.
- Remember you will have to pay tax on gains in the value of the property when you sell it, but expenses, like agent fees and interest costs can be offset against rental income.
- Letting agents will charge 15 to 20 per cent of rental income to manage your rental properties.
Where to get a buy-to-let mortgage.
Many lenders offer buy-to-let mortgages and you need to make sure you choose the right product.
The amount you can borrow depends on the size of your deposit, your income and the amount of rental income you will get from the property.
Our comparison service can help you to find the right buy-to-let mortgage deal for you.
Find a buy to let mortgage