What are Buy to Let Mortgages?

Buy to Let Mortgage AgreementA Buy To Let Mortgage allows you to buy a property and use the rental income to cover the mortgage payment and other relevant cost of the property. The mortgage will be secured against the property to be let. On some rare occasions it will also be secured against your main residence.

The amount of mortgage can be borrowed is closely linked to the projected rental income the properties might be able to generate. Buy to let mortgage lenders differ in their approaches in making such decision. Some lenders may require the estimated rental income to be 10% higher than the mortgage payment, whereas other lenders may require the amount to be 30%. This is to allow surplus rental income to cover costs such as insurance, maintenance to the property and periods between occupancy by tenants.

The rental requirement has been relaxed recently by some buy to let lenders. They are offering mortgages without a need for surplus rental income (amount of rental income = amount of mortgage payment). It is also possible to have a mortgage with option to make up any shortfall in rents by personal disposable income.

Another variable taken into account by buy to let mortgage lenders is the amount of deposit will be put towards the property value when it is purchased. Typically a buy to let deposit is around 15% of the value of the property. Some lenders allow you to put down just 10%. If the property is located in some areas with high projected rental income, 0% deposit mortgage can also be arranged. Usually the mortgage interest rate charged decreases with the increase of deposit. However, unless the amount of deposit exceeds 25-30%, there is no dramatic difference to the interest rate.

It is not just the deposit that affects the maximum amount that can be borrowed; the size of the mortgage is also another deciding factor. The mortgage per a property ranges from £50,000 to as high as £3 million. At the higher end of the range the mortgage lenders will probably restrict the “Loan To Value (LTV)” percentage. For example to arrange a mortgage of over £1 million, one probably has to put down as much as 25% deposit (LTV=75%), whereas loans under £1 million may be arranged with an 85% LTV.