Buy to let mortgages, what deposit do you need and what should the level of rental income be.
Buy to let mortgages are designed for rental properties, where the property owner is not the occupier. The UK buy-to-let mortgage market has grown fast – many mortgage lenders offer specifically designed buy-to-let mortgages at competitive rates. Buy-to-let mortgages can be fixed, capped, discounted or variable. Some may be base rate trackers, or have cashbacks and flexible features.
Lenders usually consider that they are taking more of a chance with a buy-to-let mortgage, so you will need to have a good deposit, typically 25% of the purchase price of the property you are purchasing, but an even larger deposit will probably attract a lower interest rates.
Each mortgage lender will have a method in place to calculate the amount you can borrow. Typically the lender will look for the expected annual rental income to be at least 125% of the annual mortgage payments (based on interest only). The lender will also want to be assured that the property you are proposing to buy is a good long-term investment and may also charge higher interest rates and arrangement fees for a buy to let mortgage than they would with a residential mortgage.
You need to think about whether you could afford repayments if there is a rise in interest rates. Most buy-to-let investors choose interest-only mortgages on two to three year fixed rate deals: however, it is essential to seek specialist mortgage advice from an independent buy to let mortgage advisor first. Although rates are currently very low (2015), the best rate buy-to-let mortgages also come with large arrangement fees.