Purchasing a property and letting it out can be one of the most lucrative investments. The money you get from rent can supplement your income or even become your sole source of income.
As viable as the investment may be, most people do not have the capital outright. What many do not know is that there’s a type of loan designed for this exact purpose known as a buy-to-let mortgage.
But what does it entail and how can you get one? This article will delve further! Visit Mortgages Leeds to find out what mortgage solution work for you.
What is a Buy-to-Let Mortgage?
A buy-to-let mortgage is a loan designed specifically for landlords. It allows you to buy property, including houses, condos and apartments that can be rented out and turn a profit. Similar to residential mortgages, buy-to-let mortgages require you to pay a deposit and make monthly repayments over the course of a given period. However, they have some noteworthy differences, such as:
- You’ll often need a bigger deposit
- Most of them are interest-only mortgages
- Interest rates are usually higher compared to other types of loans
- The amount you can borrow is usually based on how much the property can make in rent payments and not your income.
Who Qualifies for a Buy-to-Let Mortgage?
The specific criteria differ among lenders, but most of them will require the following:
- Have the deposit needed to take out the mortgage
- Have a good credit record
- Have an income of at least £25,000
- Show that you can be able to maintain the property
- Be a homeowner paying off a home loan
How do you Apply for a Buy-to-Let Mortgage?
As long as you’re eligible for the loan, the application process involves the following three steps:
(i) Get the property’s rental income projection – This is often achieved by seeking a report from an agent who is a member of the ARLA (Association of Residential Letting Agents).
(ii) Check your credit report – It is important to obtain and go through your credit reports before applying. This will give you the time to ensure they are up to date, challenge any mistakes and be aware of what the lender will see.
(iii) Consult a mortgage broker – This one isn’t necessary, but we highly recommend it. A mortgage broker seasoned in buy-to-let will provide solid advice throughout the process, help you get the best deal, handle the paperwork and potentially help you save money.
What are the Risks Associated with Buy-to-Let Mortgages?
While getting a buy-to-let mortgage can be rewarding in the long run, it also comes with some potential risks you should know about. The most important ones include:
(i) The Potential for Void Periods – If the property is vacant between tenants, you are expected to cover the loan payments. This can be tough, especially if you depend on rental income to pay the other expenses.
(ii) The Challenge of Finding Ideal Tenants – For the venture to succeed, you will have to find ideal tenants who are not only capable of paying rent on time but also taking care of your property.
(iii) Interest Rate Fluctuations – Interest rates change all the time, and if they go up, so will your mortgage repayments. This can hamper your cash flow, particularly if the rental income remains the same.
This article is nowhere near exhaustive, but it covers some of the most important things you should know when it comes to considering a buy-to-let mortgage.