You all know that your full-time job is not enough to make you meet both your ends. Even if you are self-employed, irregular cash inflows make it difficult for you to meet all your financial needs. While the economy is dynamic and inflation is soaring, it is crucial to have a fixed source of income. No source can be better than having a rental property. It is likely that you do not have money to invest. Don’t you worry as buy to let mortgages are out there to help you.
What is a buy-to-let mortgage?
This mortgage allows you to borrow money for buying a property to further rent out. You can apply for these mortgages only when your purpose is renting it out. Whether you are a first-time buyer or you want to create an investment portfolio, you can apply in either situation.
This type of mortgage works differently than a standard one. Interest rates, repayment terms, eligibility criteria, and the size of the loan vary. You may also be required to pay higher deposits. Whereas other mortgages are usually offered on a capital repayment basis, buy to let mortgages tend to be on either interest basis. You can either opt to pay only the interest each month and the principle is paid at the end of the mortgage term by selling the property, or opt for paying on capital basis (your repayment goes towards both the principle and the interest).
These mortgages are easier to manage than their residential counterparts as the additional funds in the form of rent can be used to pay back your loan. The difficulty arises only when your tenant is in arrears with rent payments or when your property is vacant.
- You must own your house outright or you should have a mortgage on your existing house.
- You should have a good credit score, though bad credit borrowers can also apply.
- The minimum age is 21-years.
- You should not be older than 75 when your mortgage ends.
- The minimum deposit size is 15% to 25%, depending on your credit rating and financial condition.
A standard mortgage is considered much cheaper because you submit only 5% of the value of your property as a deposit. If your credit history is perfect, your mortgage lender will be ready to approve a LTV of 95%. It means the maximum size of a regular mortgage can be 95%.
However, the deposit size for buy-to-let mortgages will vary from 15% to 25%. This implies that the maximum size of such loans will be 75% to 85%. Lenders ask for higher deposits due to the high risk involved. Your tenant is likely to vacate your property and you may have to struggle to let your house. Considering all these risk factors, lenders hesitate to increase the size of the mortgage. Shine Mortgages offers you these mortgages at competitive interest rates with minimum deposit amount.
The interest rates are decided after considering the following factors:
- The rental income you are expecting by letting your house
- Your financial situation
- The type of mortgage you borrow
- Total amount you borrow
- Your credit history
What are the different types of buy-to-let mortgages?
Following are the types of buy-to-let mortgages:
- Fixed rate mortgages - A fixed rate mortgage allows you to choose a deal with a fixed rate of interest for a specific time, for instance, two, three, five or ten years, depending on the policy of a lender. These mortgages are more manageable than others as your instalment amount is already known to you, until the fixed interest period expires. After the end of the fixed term, you will switch to the standard variable rate (SVR). Shine Mortgages allows you to switch to some better deal if SVR does not fit your budget.
- Discounted variable mortgages – It indicates that you will get a discount in your interest rate. For instance, if the SVR is 6% and your mortgage lender allows you to avail a 2% discount, the discounted variable mortgage rate will be 4%. Please note that with a change in the SVR, the interest rate will also change but the discount rate will stay static. For example, if the SVR goes up to 7%, the discounted rate will also rise by 1%.
- Tracker mortgages - Your lender will track the Bank of England rates to set the interest rate at which you will pay off the loan. You will have no idea of your instalment amount because the interest rate will change as the rate of the Bank fluctuates. If the rates go up, you will pay a higher amount, and if the rates go down, you will pay a lower amount. With tracker mortgages, you may face difficulty managing your loan.
Can you get a buy-to-let mortgage with a bad credit history?
We understand that your low score is not always the result of payment defaults. You may have a poor score because of frequent changes in your address or very little to no credit history. Getting a buy-to-let mortgage is a bit arduous, but you can get a 85% LTV if you apply at Shine Mortgages. Late payments can call your creditworthiness into question, but a few irregular repayment defaults will not harm your chances to get a bad credit mortgage.
How to find the best deal?
Finding the right option is like finding a needle in a haystack. Below are some tips that can help you find the right deal:
- Research and compare rates, fees, terms, and the type of mortgage.
- Use an online mortgage calculator to know the total cost of your mortgage.
- Think carefully which mortgage deal will work to your advantage.
Apply for Buy-to-Let Mortgages today and generate a long-term fixed source of income.