Introduction to Buy To Let Mortgages: Differences between Buy to Let Mortgages and Traditional Mortgages
The buy to let mortgage industry is by far the fastest growing sector
in most countries' mortgage market. However, if you are considering
investing in property or you want to improve your returns on a buy to
let mortgage that you already own, it is imperative to have as much
information as possible about this type of mortgages and how to let them
successfully. Without much ado, here are main differences between
traditional mortgages and the buy to let mortgages:
Fees: Generally, the fees associated with
most buy to let mortgages are considerably higher than those of
residential mortgages. Arrangement fees, for instance, can be 3.5
percent of the total cost of the mortgage.
Income assessment: Typically, buy to let
mortgages are assessed as a percentage of the total rental income (which
is often estimated at about 125 percent of the mortgage repayment).
This means that if the mortgage repayment of a given property is £500 per
month, the lender should be ready to pay a monthly rental income of at
least £625.
Deposit/Equity: The loan to value ration
that you can borrow for buy to let mortgage is generally lower than what
you would get from the traditional residential mortgages. In other
words, the amount of capital that you can borrow at a given time is
considerably lower. As such, there is high likelihood that you will be
required to pay for larger deposits if you are a buy to let mortgage
investor—usually 20 percent of the value of the property. On the
contrary, traditional mortgages will allow you to borrow up to 90
percent of the property value, and will require only 10 percent of the
property value to be paid as deposit.
Interest Rates: Like fees, the interest
rates associated with buy to let mortgages tend to be higher compared to
those expected in conventional homeowner mortgages. On conventional
residential mortgages, you can expect to pay around 5 percent interest
rates while for buy to let mortgages, you are likely to part with 6
percent.
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