Buy to Let Mortgages

Lending Criteria: Buy to let

Rental yield. This is the amount of income a property can generate. It must cover the interest payments on a buy to let mortgage by 120%-130% depending on the lender. The surveyor instructed by the lender will determine what rent the property is likely to yield. See this calculator to work out what you might be able to borrow

Loan to Value. This is the percentage that the mortgage represents against the value of the property. Simply divide the mortgage by the property value to find the loan to value.

Most Buy to Let lenders are looking for a minimum deposit of 20%. However, if the rental yield is not high enough then more deposit is required.

Income. Most buy to let lenders will require you to have personal income (excluding the rent from the property) of at least £15,000, some as high as £20,000. This should enable you to cover any short term Voids (periods when the property is empty and not generating income)

Repayment Type. You can choose between repayment or interest only. Interest only is likely to save you tax compared to the repayment method. This is because the charge to interest reduces after each mortgage payment; you can offset interest charges against rental income for tax purposes, so if the amount of interest you pay reduces then there is less to offset and more tax is payable.

The capital payments that you would have made under a repayment mortgage should be set aside into a savings plan like an ISA. This would be tax efficient too and could be used to fund further buy to let properties in the future. Eventually, you should build up enough funds to repay the mortgage and own the property outright.

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