What you need to know about UK buy to let mortgage rates

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The term buy-to-let refers to a property explicitly purchased to be rented out, as such, a buy-to-let loan is only available if the borrower agrees to rent out the house. These loans operate in a different way than residential loans; whereas normal residential mortgages are based on the applicant’s income, UK buy to let mortgage rates are based on the amount of rent the property generates. Furthermore, the higher amount of rent a property can generate, the more money will be available through a mortgage.

The recent announcement of a mortgage guarantee scheme by the Chancellor Rishi Sunak should also help those with only a 5% home deposit as it encourages banks and lenders to support first-time buyers.

The minimum deposit for a buy to let property is usually around 25% and the majority of borrowers opt for an interest-only loan. They only pay the interest monthly as yielding just the interest results in a lower monthly charge, which translates to a higher rental income.

It’s important to remember that at the end of your mortgage term, you’ll still owe the entire outstanding capital balance, regardless of how much interest you’ve paid so far. A buy to let mortgage would be your only choice if you were renting instead of owning the property outright.

Who can get a buy to let mortgage?

Buy-to-let (BTL) mortgages are more difficult to come by than they used to be, and landlords find it more challenging to make a profit. With interest rates as low as they are, investing in buy-to-let property could help you take advantage of the best UK buy to let mortgage rates while still potentially earning a higher return than with a savings account. Plus, there’s always the possibility of long-term capital growth in the house.

While a substantial deposit will help you obtain the mortgage you need, various lenders have different requirements. However, most mortgage lenders have some clear conditions that you must meet, and they are more stringent now than they used to be.

How much can you borrow with a buy to let mortgage?

The amount you can borrow for a mortgage on a buy-to-let property is primarily determined by the rental rate you get, but other factors include the inflation calculator, which estimates how much you can spend against your projected earnings.

Despite other considerations, it seems that the most critical factor is the amount of rent you will earn. The amount that may still be borrowed for anything like a purchase or an interest payment would be divided into several stages.

With the details above, you can determine whether you can afford to invest in real estate and whether it is the right choice for you. If you proceed, pick a property that suits your budget, appeals to tenants, and will likely yield a profit. Compare a variety of UK buy to let mortgage rates to see which one is best for you. If you need assistance, seek advice from an impartial financial advisor or mortgage broker.

Raising property investment finance

There’s a lot to consider when navigating the various financial routes to securing the best  buy-to-let mortgage rate in the UK. Experts from private and commercial bank, Arbuthnot Latham, offer tips to help you find a clearer path:

In the UK, property remains one of the most resilient asset classes. From first-time buyers to portfolio landlords, getting established on the property ladder remains a popular way for many to grow their wealth.

Depending on an individual’s circumstances and ambitions here are the various routes to securing finance for property investment in 2021 and beyond.

Property finance for individuals

Many individuals who have enough capital will look to supplement their income by acquiring a second or third property on top of the one they live in. This will almost always involve a personal investment of capital and additional funds secured via a loan or mortgage.

The appeal of becoming a buy-to-let landlord is not just the relatively good performance of the UK residential property market, but the fact that the value of the asset can be increased with a proactive approach to property maintenance and improvement.

Until now, property has been a very stable asset class, and is one that empowers the owner to increase its value over and above standard market movements. It is important to note, as with any asset class, that previous performance is not an indicator of future performance.

If an individual is looking to make this sort of investment, any finance they are able to secure will be contingent on their own circumstances. For example, will they be able to show how they would personally cover a shortfall if rental income doesn’t cover interest payments?

Whether they are entering the property investment market for the first time or expanding their portfolio, a clean credit score is an essential part of the puzzle.

Small issues like missed payments might not make a huge difference, but County Court Judgements (CCJs) or missed mortgage repayments will be a significant barrier to securing the finance they need.

Minimum income

Most lenders offering the best UK buy to let mortgage rates require a minimum income to consider eligibility, but there are options for those with a lower income threshold, and there are even options available that have no income requirements.

Current portfolio or assets

What lenders are willing to offer will change depending on if the individual is new to property finance or already own properties. Some lenders won’t consider landlords who own several properties, but this varies across the UK.

Property finance for portfolio landlords

Individuals who own four or more mortgaged properties become what is known as a ‘portfolio landlords’.

When they pass this threshold, there are certain expectations on banks regarding due diligence.

From here, it’s not just about their personal circumstances. For example, a bank is required to know the status quo of the rest of their portfolio.

They need a deeper understanding of how the assets might interact and will also want to gauge their understanding of the market they’re operating in.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Getting Money Wise. The information provided on Getting Money Wise is intended for informational purposes only. Getting Money Wise is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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