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Mortgage rates: How does a buy-to-let mortgage work?

Mortgage rates: How does a buy-to-let mortgage work? 1107479


There are many different mortgages available for those buying a house, with most homeowners opting for a residential mortgage to pay for a property they hope to live in.  For some, they may be looking to buy a property for the sole reason of renting it out rather than living in it themselves.  In order to do this, homebuyers will need to apply for a different type of mortgage that will let them buy a property to rent it out.  They can opt for a buy-to-let mortgage, but what is this and how does it differ from a residential mortgage?

For those hoping to buy a property to rent out, they will need to get a buy-to-let mortgage, which could leave them paying higher fees and a higher rate of interest, according to moneysupermarket.com.

Buy-to-let mortgages are usually only offered on an interest-only basis, which means the payments made will only cover the interest of the loan.

This is different from most residential mortgages, as these will cover both the capital, or amount borrowed, and the interest, so will gradually be paying back the price of the property.

All mortgages have a loan-to-value figure. This is the size of the mortgage as a percentage of the value of the property, moneysupermarket.com stated.

With a residential mortgage, the difference between the loan-to-value and the asking price makes up the deposit that is paid, and this can be as little as five per cent.

Most lenders will ask for a 25 per cent deposit to get a mortgage, meaning homeowners will need a bigger chunk of money to begin with before they can make the purchase.

For homeowners who have bought a house to rent out, the amount they must pay for their interest-only mortgage would be typically be covered by the amount of rent they receive.

However, relying on rent could be a risk in case there are any issues with collecting this or any vacant months in the property.

Before opting for a buy-to-let, homeowners will need to consider if they can afford to do so when factoring in extra costs, such as landlord feeds.

When the homeowner reaches the end of their interest-only mortgage, they will still need to pay off the original price of the house.

This can be done by selling the property, although the house price value to have risen or stayed the same or the funds will need to be paid off another way.

Many homeowners are waiting to hear how Brexit will affect the value of their house and if their mortgages will increase. 

Which? Mortgage Advisers’ David Blake warned against making any bold decisions.

He said: “Mortgage rates are incredibly low right now and many will want to fix into a low rate to give themselves security as we move into a period of uncertainty.

“But don’t just jump into a fixed rate without considering the alternatives – there are plenty of flexible products that would leave your options to remortgage open if rates did start to change.”

If hoping to buy a cheap house, a property in Darlington, County Durham, is on the market for just £10,000. 

However, £10,000 is revealed to be just the deposit for this home.

Though buyers don’t need a mortgage, they will have to pay a weekly sum of £206.



Source: express.co.uk

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