A buy to let mortgage is designed for those who want to buy property to rent out to a third party. As with a residential mortgage you can choose between fixed, discount, and other mortgage types, however the key difference is working out how much you can borrow.
Buy to let mortgage lenders look at the likely rental income from the property as well as the applicant's annual income. Here are some good points to note when looking into a buy to let mortgage:
Loan-to-value (LTV) is generally 60%-85% for buy to let mortgages.
Your rental income will generally need to be around 125% of the monthly mortgage payments.
You can expect a buy to let mortgage to be approximately 1%-2% more than a residential mortgage.
Many landlords prefer a buy to let interest only mortgage. The lender will normally base affordability on the rental income which will generally need to be 125% more than the monthly payments.
If you are planning to create a lettings portfolio – some lenders will place a cap on the number of properties it will mortgage.