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What is Buy to Let?

Home » Mortgages » Buy to Let Mortgages » What is Buy to Let?

If you’re buying a property to rent out, you’ll need a buy-to-let mortgage.

These differ from conventional mortgages you use to buy your own home, so it’s important to understand how they work.

Understanding the differences

You’ll need a bigger deposit, you’ll face higher fees and you’ll pay a higher rate of interest.  Buy-to-let mortgages are often offered on an interest-only basis, which means the capital debt – the amount you’ve borrowed as a mortgage – will only be cleared at the end of the term, usually from the sale of the property itself (or another property).

Most residential mortgages are capital and interest loans, where your monthly payments cover the interest and a portion of the debt, and the value of the loan plus interest is gradually paid back over the term of the loan.

Seen as higher risk

Landlords with a buy-to-let mortgage usually expect their monthly mortgage payments to be covered by the rent they receive.  But some months there may be problems with rent collection, and other months there might not be any tenants living in the house and paying rent.  Hence a buy-to-let mortgage is seen as a higher risk from the lender’s point of view, and buy-to-let borrowers have to pay higher costs.

The average purchase price for a buy-to-let property from 2016–2018 was £183,278, compared to £272,425.00 for a residential purchase property.  This suggests prospective landlords might be looking for less expensive properties because they need to find a bigger deposit to get a buy-to-let loan.

Get in touch to discuss buy-to-let mortgages Read our detailed guide to buy-to-let

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