Mortgage On An Investment Property
Facts For Getting The Best Mortgage On An Investment Property
There are now thousands of new landlords who have taken the step of getting a mortgage on an investment property. But what exactly does that mean and what do people need to know to get a mortgage on an investment property? Here are some common questions and answers about the process of obtaining a mortgage on an investment property.
The first thing that many people want to know about a mortgage on investment property is how this is different from getting a mortgage on a property you intend to live in. Like a residential mortgage, a mortgage on an investment property (which is also known as a buy to let or landlord mortgage) is secured on the house. This means that if the interest on the BTL mortgage is not paid, the mortgage company has the right to reclaim the property.
Secured BTL Loan
The good news is that since an investment mortgage is essentially a secured loan it will cost you less than a loan for buying a car or going on holiday. However, because you are dependent on having tenants in your rental property in order to repay the mortgage, it is seen as a higher risk than a standard residential mortgage. This means that the average interest rate is likely to be slightly higher than you would pay for your home mortgage.
Another common question when it comes to getting an investment mortgage relates to rental cover. In most cases, lenders expect the rental income to cover the interest due on the mortgage plus another 25 per cent or 30 per cent. This means that landlords have the money not only to pay the interest on the BTL mortgage but to refurbish, furnish, insure and manage the investment property.
The market for investment property mortgages has become increasingly competitive, with many lenders offering rental cover requirements as low as 100 per cent. What this means for landlords is that the additional money for managing the property comes out of their pocket, so deals like this should be examined closely.
Many landlords also want to know how much they can borrow. This depends on the amount they want to borrow and the lender's requirements. Landlords can expect a maximum loan to value of 85 per cent for a mortgage on an investment property, but this can drop to below 70 per cent with some lenders. And if the property is expensive, the loan to value may well be lower.
When landlords are looking for a mortgage on an investment property another question will be the type of property they can use for buy to let. This will vary with each lender. Some lenders specify no student lets, especially since the changes in the Housing Act relating to houses of multiple occupancy (HMOs). Others refuse right to buy cases. It's worth shopping around to find a lender who will lend on the property you wish to buy. With dozens of lenders in the market, it is not difficult to get a mortgage on an investment property.
