Picking the right buy-to-let mortgage can make all the difference between profit and failure for landlords. Pick the perfect mortgage and make top up your income after you’ve read our guide.
Buy-to-let mortgages have some key differences to ordinary mortgages. Switching to one before renting our your home, or seeking one out when you are buying an investment property can seem like a hassle, but you cannot have an ordinary mortgage if you are planning to let out a property.
So what’s the difference between a buy-to-let mortage and any other home loan?
If you’re thinking of buying a house specifically to let, you will need a buy-to-let mortgage
It’s more complicated if you already own a home and are thinking of renting it out. You need to ring your mortgage lender and tell them your plans. They have to give their ‘consent to let’ the property otherwise you may end up in breach your mortgage contract.
Unfortunately, there is huge variation amongst banks when it comes to dealing with accidental landlords. Some will charge you 1 or 1.5 percentage points in extra interest. Others will insist that you remortgage onto a buy-to-let deal, in which case you should shop around for the best deal.
Trackers are normally a bit cheaper, but you are taking a bit more risk as your monthly payments could increase in interest rates rise.
If you are worried that the base rate will increase soon, and you might not be able to afford the increase in monthly payments, it’s best to opt for a fixed rate.
If you’re confident the base rate will stay low for several years, and could afford an increase in mortgage payments, opt for a tracker.
You can use a mortgage calculator to work out how your repayments would change if interest rates rose.
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Unlike residential mortgages, you will need at least a 25% deposit if you want to become a landlord, as at any given time there are very few, or even no buy-to-let mortgages on the market that accept less than that. The profit you make will also be seriously affected by the size of your deposit. The smaller your deposit the higher your interest rate, which means smaller profits.
Ideally, its best if you have a deposit of over 40% as then you will be able to access the best interest rates on the market. So if you were buying a house for £200,000, you would need £80,000 in savings to pay the least interest.
It’s vital to take action a couple of months before your initial fixed or variable rate ends.