Investing in property can be a lucrative venture, and one of the most popular options for property investors is a buy to let mortgage. In this article, we will explore what a buy to let mortgage is, who is eligible for it, and how to apply for one.
We will also discuss the different types of buy to let mortgages, the borrowing limits, the required documents, any additional costs involved, and whether first-time buyers can get a buy to let mortgage.
A buy to let mortgage is a type of mortgage specifically designed for investment properties. Unlike a residential mortgage, which is used to purchase a property for personal living purposes, a buy to let mortgage is used to purchase a property with the intention of renting it out to tenants. The rental income generated from the property is then used to cover the monthly mortgage payments, with any surplus considered profit for the landlord.
To determine your eligibility for a buy to let mortgage in Leicester, several factors need to be considered. These include the type of property you intend to purchase, your age (most lenders require borrowers to be at least 21 years old, with an upper age limit of 75), and your experience as a buy to let landlord. The main factors that lenders will assess are your affordability, minimum deposit requirements, and credit score.
To prove your eligibility for a buy to let mortgage, you will need to demonstrate your affordability to the lender. Most lenders base their criteria on the projected rental income of the property. They will calculate the minimum rental income required to cover the monthly mortgage payments, plus a buffer. Some lenders may also have a minimum income requirement, typically around £25,000 per annum. Working with an experienced buy to let mortgage broker in Leicester can help you find the most suitable lender and deal for your investment.
As with any property purchase, a deposit is required when taking out a buy to let mortgage. The minimum deposit can range up to as much as 40% of the property value, although this may vary depending on the lender. A higher deposit reduces your risk as a borrower and allows you to access better interest rates. If you have bad credit, you may be required to put down a larger deposit.
Having a poor credit score or a history of bad credit does not necessarily disqualify you from obtaining a buy to let mortgage. However, it may limit your options and result in higher deposit requirements. Lenders willing to lend to borrowers with bad credit will assess the severity and cause of the credit issues. It is advisable to work with a mortgage broker who specialises in buy to let mortgages to find suitable lenders.
The first step in applying for a buy to let mortgage is to find a property that you wish to purchase. Once you have a property in mind, it is recommended to consult with a buy to let mortgage advisor who can confirm your eligibility, search for the best deals in the market, and obtain an agreement in principle. With an agreement in principle, you can make an offer on the property, and if accepted, proceed with the full mortgage application process.
The most common type of buy to let mortgage is an interest-only mortgage. With this type of mortgage, you only pay the interest each month, resulting in lower monthly payments. At the end of the mortgage term, you are required to repay the remaining capital balance, either by selling the property or remortgaging onto a repayment mortgage. However, it is also possible to apply for a repayment mortgage, where you pay both capital and interest each month, allowing you to build equity in the property over time.
The amount you can borrow for a buy to let mortgage depends on your projected rental income. As long as the projected income is sufficient to cover the mortgage payments, there are generally no limits on the borrowing amount. However, lenders may require the projected rental income to exceed the monthly payments by a certain percentage.
When applying for a buy to let mortgage in Leicester, you will need to provide various documents to the lender. These include proof of income, deposit, identification, address, and any bonuses or commissions. If you are self-employed, you will usually need to provide your SA302 tax returns. Existing landlords may need to provide proof of rental income, such as an ARLA-regulated report, and a mortgage statement for their current properties. Being prepared with these documents in advance can expedite the mortgage application process.
In addition to the standard costs associated with a mortgage, such as the deposit, mortgage arrangement and application fees, and monthly payments, there may be additional fees for a buy to let mortgage. These can include valuation fees, product fees, mortgage exit fees, solicitors fees, disbursement fees, and stamp duty. Landlord insurance, letting agent fees, income tax, and property maintenance costs should also be considered. The specific costs will vary depending on the lender and your personal circumstances.
Yes, it is possible to remortgage a buy to let property. Many landlords choose to remortgage to release equity from their property, allowing them to use the funds as a deposit for additional properties. The equity in a buy to let property may differ from a residential property, particularly if it is on an interest-only mortgage. Switching from an interest-only to a repayment mortgage can also be an option to pay off the capital balance.
While options may be limited, as a first time buyer, there is a potential to obtain a buy to let mortgage in Leicester. However, a larger deposit is usually required to access the desired borrowing amount. It is important to note that first-time buyer benefits, such as stamp duty relief, do not apply to buy to let properties. Becoming a landlord as a first time buyer can be a way to generate income before being able to afford a residential mortgage.
In conclusion, a buy to let mortgage is a popular choice for property investors looking to generate rental income. Eligibility is based on factors such as affordability, minimum deposit requirements, and credit score. The application process involves finding a property, consulting with a buy to let mortgage advisor in Leicester, and submitting a full mortgage application.
Different types of buy to let mortgages and borrowing limits are available, and specific documents are required for the application. Additional costs should be considered, and it is possible to remortgage a buy to let property. First time buyers can also explore buy to let options, although with certain limitations.
Date last edited 28/06/2023