As every penny matters when it comes to investing in property, it is important to seek expert advice from qualified buy to let mortgage brokers in order to access the best mortgage deals. However, as there is more to the buy to let process than simply finding deals with the cheapest overall costs, let’s take a look at some of the considerations you’ll need to make when embarking on your newest financial investment.
What is a buy to let mortgage?
Buy to let mortgages are designed for buyers who are purchasing a property to rent out. Investing in buy to let property can deliver solid returns, however, it is important to spend time developing a robust plan that will ultimately help you to maximise the value of your investment. This is where buy to let mortgage brokers come in, as they have the experience and knowledge to help you obtain the best possible deals and provide helpful tips and tricks along the way.
How do lenders assess buy to let mortgages?
Lenders utilise specific rental affordability calculators to decide whether your circumstances are suited to a buy to let mortgage deal. These calculations are primarily based on the rental income the property you want to buy is expected to deliver. Let’s take this opportunity to look at an example.
If you’re a basic rate tax payer, buy to let mortgage lenders typically want your monthly rental income to equate to at least 125% of your monthly mortgage payment. This is calculated on an interest-only basis at a nominal 5% rate. If you’re a higher rate tax payer, you can expect this figure to rise to at least 145% of the cost of your monthly mortgage payment.
What is top slicing?
Some lenders will factor your own personal income into their stress test equations, which is a process known as top slicing. This can help to cover any shortfall in expected rental income, however, not all lenders offer this option.
How much of a deposit will I need to put down to obtain a buy to let mortgage?
Typically, lenders want to see at least a 25% deposit. If you can put down a larger deposit, you will likely have access to a wider range of products, and this is generally the only way to access mortgages with more competitive rates.
Do I need a buy to let insurance policy?
Lenders will generally only consider lending to potential buyers who have a valid buildings insurance policy. If you are planning to purchase additional buy to let properties in the future, it is worth taking out a policy that will allow you to grow your portfolio.
Will I need a property survey?
Lenders all have their own property survey requirements. While some lenders will lend on a property that has only had a basic property valuation survey, others will request a full structural survey which will come at an additional cost.