Buy-to-let mortgage rates vary, and similarly to any other type of mortgage, are dependent on a number of factors including how risky the loan is, how much deposit is put down and how strong your credit score is.
The rates of buy-to-let mortgages are often higher than residential mortgages. Banks and building societies charge higher rates for buy-to-let properties because they present a greater risk to the lender.
This also means that the amount you can borrow when compared to the price of the property is lower with a buy-to-let mortgage. The loan-to-value ratio of a first time buyer’s mortgage in 2016/17 was 84%, meaning they borrowed 84% of the property’s value. For buy-to-let purchases, the ratio was just was 69%
There are many risks involved with buy-to-let investments, therefore you have to be confident that you can cope if your property is empty for any period, or if tenants prove to be unreliable.
You also have to make sure the sums add up, bearing in mind that both rents and house prices could come down, leaving you with a large interest payment to make each month.
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There is usually a list of other eligibility criteria for buy-to-let mortgages. Most banks and building societies insist on a minimum age, often 25, plus a minimum income, usually around £25,000. You’re not normally allowed to take out more than three buy-to-let loans and there will be a cap on the total amount you can borrow, though it could be £2 million or more.
However, data shows that value of buy-to-let properties tend to be a lot lower than for first-time purchases. In 2016/17 the average buy-to-let property was worth £30,000 less than the average first-time buyers’ home.
You can usually choose between a range of mortgage deals, including fixed rate and tracker loans. Arrangement fees also apply – and they can be high, typically more than £1,000.
Many landlords prefer a fixed-rate mortgage so that they can budget with more certainty. But tracker loans are often cheaper, if you are happy to cope with fluctuations in the cost of your mortgage.
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