Mortgages

If you are purchasing a buy-to-let investment property and require a mortgage to do so then you will need a specialist buy-to-let-mortgage. Standard residential mortgages do not allow you to rent out and make a profit from your property. Similarly, buy-to-let mortgages do not allow you to live in the property yourself. It is therefore important you are clear what your intentions are before applying for a mortgage.

Buy-to-let mortgages generally require a higher deposit of 25% compared to standard mortgages and usually have higher interest rates. However, with most buy-to-let mortgages being interest only, repayments are usually more affordable.

In terms of how much you can borrow, this will again differ between lenders. As an idea, most will require that the rental income cover 125 -145% of the cost of your monthly mortgage payments.

In addition to requiring a higher deposit, buy-to-let mortgages will have different lending criteria than standard residential mortgages.

Lending criteria for buy-to-let mortgages will of course differ depending on the lender. However, most will expect the applicant to:

• Already be a homeowner.
• Have a high credit score.
• Be in a position to pay off the mortgage by the age of 70-75.
• Have an annual salary of over £25,000.
• Have prior landlord experience in some cases.

These criteria are a guide and as stated above, they will differ from lender to lender. A buy-to-let mortgage professional will be able to discuss your personal circumstances with you in order to recommend the best lender. If you don’t for example have prior landlord experience then they will know which lenders to avoid and so on.

The first step in the mortgage application process is ‘pre-qualification. This is essentially a series of checks carried out before applying for a mortgage, to allow lenders to assess your suitability for the loan.

These checks will include an assessment of your credit and debt history, current income and assets. It is important to note that this information is often self-reported, meaning any inaccuracies in your reporting may lead to false qualification.

The next step is ‘pre-approval’. Whilst pre-qualification is carried out via self-reporting, pre-approval requires evidence of your current situation, including debts, credit, income and assets. Once the evidence is reviewed, you will receive a pre-approval letter which can be used to show property sellers you are in a position to purchase a home.

It’s important to remember when carrying out pre-qualification that if you are unable to provide evidence for the information you have reported, you may be unable to achieve pre-approval.