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The advantages of a buy-to-let mortgage

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Written by Nisha Vaidya, Content Editor

1 April 2021

Whether you’re investing in bricks and mortar for the first time or are adding to your collection of investment assets, a buy-to-let mortgage can help landlords realise their property dream.

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Being a landlord is an attractive proposition if you want to invest in bricks and mortar to enjoy short-term returns while seeing your asset appreciate over time. 

However, unless you have a Scrooge McDuck money pit in your basement, getting a buy-to-let mortgage is the best way to purchase a rental property, as you can borrow the majority of the house’s value. 

Borrowing the funds required can help you become a first-time landlord or increase the number of properties you have in your portfolio. And there are several benefits to getting a buy-to-let mortgage, from lower monthly repayments to long-term capital gain.

Lower monthly repayments

Most buy-to-let mortgages are interest-only, which means you only pay off the interest on the loan. While this might sound counterproductive at first, it actually gives landlords more financial freedom and flexibility. 

Only paying the interest means you can achieve a better monthly rental income on the property, as your mortgage repayments won’t account for a high proportion of the rent you receive each month. 

Capital gain

Most mortgages last for between 25 and 30 years. And while there’s no guarantee your property will increase in value, history tells us that house prices rise rather than fall. That means you should be able to fully pay the loan amount off at the end of the mortgage term if you don’t wish to extend and earn a profit from the property’s increased sale price.  

Focus on rental income 

Lending requirements for a buy-to-let mortgage are different from residential borrowing. Lenders look at the potential rental income of the property you want to buy and lend based on whether it will achieve 125%-145% of the monthly mortgage repayment.

Examples

Rental income of 125%

Amount borrowed = £165,000

Monthly Rental = £774 per month

OR

Rental income of 145%

Amount borrowed = £165,000

Monthly Rental = £898 per month

Some lenders may require you to earn a minimum of £25k per year, but the primary focus will be on how much the property gets in monthly rental income.  

Learn more about how much you can borrow with a rental income calculator