You may have seen the term Buy To Let thrown around, or even looked into getting a Buy To Let mortgage, but what does it actually mean?
Ultimately, it means you’re purchasing the property, but without the intention of living in it. You’re buying, to let it out to a tenant. So, let’s break it down, what does this look like, and could it be the right mortgage for you?
How to apply
You can apply for BTL mortgages in exactly the same way as a standard mortgage, the only notable difference is that due to the increased risk of relying on someone else for the payments to be made, you will usually find you need to pay a higher deposit. Most start at around 25% - 30%.
What are the advantages?
- Most BTL mortgages are interest only, meaning as you make payments it clears the interest and not the capital. This may seem like a negative, however, depending on how much your mortgage is and how much you charge for rent, the extra could be used to clear the capital, meaning the property really does pay for itself. Alternatively, you can use this as a source of extra income – keep in mind, you will need to pay income tax!
- Property is usually a long-term investment, so unless the market crashes and your property decreases in value, you’re usually creating a safe nest egg that you can utilise later in life.
What are the disadvantages?
- Regardless of if the property is occupied or not, you will still be responsible for all of the bills and mortgage, so this can be costly and eat away at your income or savings if you don’t have a tenant covering the costs. There is never a guarantee your property will be occupied 24/7, so it is a big decision to make and you must be sure you’re financially stable to take on this investment opportunity and commitment.
- Repairs can get quite costly, and as the landlord, it is your responsibility to foot the bill. This could be the same for damages – however, hopefully, you have a security deposit in place that can lessen the hit.
Can I switch to a BTL mortgage?
Short answer, yes!
If you are no longer living in the property and have found yourself becoming a landlord, however unintentionally, you MUST tell your mortgage lenders otherwise it can invalidate your mortgage.
Depending on your lender, you may not be able to do this, in which case you will need to look at remortgaging, so be prepared to search around to find the best deals for you and for the process to take a few weeks. The more notice you give, the better!
Extra things to remember
- Do you want to tackle all of the landlord responsibilities, or would you like to hire an agency to deal with finding the tenants, looking after the property, and collecting the rent on your behalf? Although this is an extra cost, it can provide you with peace of mind!
- Remember, you’re not picking a property for yourself. Making a checklist of things renters would appreciate will benefit you in the long run!
- Mortgages can have high upfront costs, so just remember to research, and make sure you know what you’re getting into, it is no small commitment!
While you’re here, why not check out our tips on How to save for a mortgage? Alternatively, you might want to read up on the Pros and Cons of remortgaging if you already have a mortgage in place!
By Emma Thomas