FAQs - Buy to let mortgages
Whether you are investing in property for capital growth or to generate an income, it's crucial to find the right buy to let mortgage. In this FAQs blog, our expert advisers answer the questions you need to ask.
Is it a viable investment?
One of the key criteria lenders consider before making a mortgage offer is whether the investment property is viable from a lettings perspective. They will want to know that the monthly rental income is higher than the cost of the mortgage repayment.
Criteria for rental assessment does vary, lenders generally look for the monthly rental income to be around 145% of the monthly mortgage repayment, assessed on a ‘stress rate’ of 5.5%, which they will want to be verified by a qualified surveyor.
We'll help you find the best option - providing expert advice on whether the property you are considering will generate enough income to cover not just your mortgage payments, but also all the associated costs of owning and letting a property, such as maintenance.
How much deposit?
When you are buying a property as a home, loan-to-value ratios can be as high as 95% - so you only need a 5% deposit.
With a buy-to-let mortgage, that figure will be much higher; your deposit maybe 25-40%, with only specialist lenders considering 15%.
Usually, the higher the deposit you can pay, the wider the choice of mortgage products you will be able to choose from. And the interest rates available may be lower, too.
What fees will you pay?
Ocean’s services are free to you. But your lender will probably charge you some arrangement and administration fees, as well as valuation costs.
We will advise you if it’s worth paying higher fees for a mortgage product better suited to your circumstances.
What about interest rates?
Interest rates for buy to let mortgages are generally higher than for residential mortgages. And another big difference is that buy to let mortgages are usually interest-only, rather than repayment.
That means you don’t pay back any of the capital you have borrowed until the end of the mortgage term. Your monthly payments only cover the interest on the loan.
The advantage is that your monthly payments will be lower, but if property prices fall, there is a risk that when you come to sell, you may not have enough equity to pay off the mortgage.
How often do I change a BTL mortgage?
To maximise your rental profit, it’s important to regularly review your existing mortgage to make sure you have the most competitive deal for your circumstances.
As part of our free service to you, we'll constantly monitor changes in the Bank of England base rate and the mortgage market, checking that the rate you are paying remains competitive.
If we can see a deal that would suit you better, we may advise switching mortgage products or even lenders.
For free, expert, independent advice click here
Sat 12 Feb 2022