Investment Mortgages / Buy to Let and Rental Type Mortgages
If you are buying a property for investment purposes – i.e. to rent out rather than live in – you will need a buy-to-let (BTL) mortgage.
Buy to Let mortgages are different from mainstream mortgages as, instead of assessing the amount you can borrow based on your income, loans are calculated on the rent you could get for the property.
In the past lenders required a rental coverage above that of the mortgage amount, for example 120 per cent of the monthly repayments. But lately the rules have become more relaxed and you can get a mortgage with rental coverage of 100 per cent in some cases.
However you normally still have to raise a deposit of 10 per cent or more. Traditionally only a small number of specialist lenders offered BTL mortgages but more recently we have seen high street banks start to lend to landlords.
BTL mortgages can normally be either repayment or interest-only loans. Interest-only mortgages mean cheaper monthly payments but the property will not be yours at the end of the term – you will still need to repay the capital amount or sell the property. Repayment mortgages ensure that you repay a bit of the capital and a bit of the interest each month and at the end of the term the debt is fully paid off.