What is a Buy to Let Mortgage?
A Buy to Let mortgage is used to buy a property that you will not personally live in but will be rented to a private tenant.
Will my Residential Mortgage be Taken into Account?
The lender is not concerned with other mortgages that you may have.
Lenders will insist that the property is not let to family members. A lease agreement should be in place (Shorthold Tenancy Agreement), usually for a period of 6 months – some lenders may not allow longer agreements, since they may need vacant possession of the property if the mortgage ran into arrears and was subsequently repossessed (the lease would not be renewed and the lender could then take vacant possession upon expiry of the existing lease agreement).
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.
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.
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)
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.