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How to choose a buy-to-let mortgage

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You can be forgiven for finding navigation of the mortgage market akin to navigating a mindfield. But in this article, we aim to remedy all that, shining a light on how to choose a buy-to-let mortgage and what you need to consider before doing so.

What is a buy-to-let mortgage?

Simply put, a buy-to-let mortgage is the same as a residential mortgage except you are taking out a loan to buy a property you don’t intend to live in. When you secure a buy-to-let mortgage on a property, the lender will provide you with a loan which will be secured against the property, and that loan will need to be repaid over time.

How do buy-to-let mortgages work?

Landlords looking to take out a buy-to-let mortgage for the first time should be aware that they differ from residential mortgages in a variety of ways. For example, lender fees can be higher, the interest rates can be higher, and many are interest-only. You may also be required to pay a larger deposit (approximately 25%) when taking out a buy-to-let mortgage when compared to a residential mortgage. Buy-to-let mortgage loans are deemed higher risk than residential property loans, so the former is usually more expensive.

How to choose a buy-to-let mortgage

It’s always wise to seek impartial and professional advice when it comes to searching for the best deals and comparing what’s available on the market. The larger your deposit, the more favourable the interest rate and the more choice available to you. It is therefore preferable to save as large a deposit as possible. But always seek advice, as it’s important to find the right mortgage for the property once you have your finances in order.   

What will a lender be looking for?

A lender will seek reassurance that your predicted rental income will comfortably cover the mortgage and other payments. If you are taking out your first buy-to-let mortgage, then a lender may also consider your income.  

Mortgages and ‘portfolio landlords’

Portfolio landlords, or landlords with four or more properties with buy-to-let mortgages, now must pass more stringent affordability tests when applying for a buy-to-let mortgage. As of September 2017, a lender must now access each property in a landlord’s portfolio when considering the landlord’s application.  

Will the rent always be able to cover the mortgage repayments?

Most landlords will experience void periods – a time when the property is empty, and no tenants are paying rent – yet mortgage repayments still need to be paid. The solution? At Assetgrove we offer guaranteed rent for up to five years. This means that landlords will not have to worry about void periods or loss of income. So, if you have mortgage payments to cover, you’ll have the guarantee that rent will always be coming in to cover it.  

Find out more about our rent guarantee scheme

Neil Jennings

Neil is the Operations Director at Assetgrove Lettings, London's Leading Rent Guarantee Company, providing Landlords with no voids, property maintenance, fee-free property management and stress-free service.

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