What to consider when choosing a buy to let mortgage
Investing in property is a popular way to grow your wealth, and buy-to-let mortgages are a great way to finance your property investments. However, with so many buy-to-let mortgage deals available, it can be difficult to know which one is right for you. In this article, we’ll explore the key factors to consider when choosing the best buy-to-let mortgage.
Loan-to-value ratio
The loan-to-value (LTV) ratio is the amount of your mortgage compared to the value of the property. For example, if you want to buy a property worth £200,000 and you have a deposit of £40,000, you would need a mortgage of £160,000. This gives an LTV ratio of 80%.
Generally, the lower the LTV ratio, the better the interest rate you’ll be offered. This is because lenders view lower LTV ratios as lower risk, as you have more equity in the property.
Interest rates
The interest rate is the amount of interest you’ll pay on your mortgage. There are two types of interest rates: fixed and variable.
A fixed interest rate means that the interest rate you pay will remain the same for a set period of time, usually between two and five years. This can make it easier to budget, as you’ll know exactly how much your mortgage payments will be each month.
A variable interest rate means that the interest rate you pay can go up or down, depending on changes in the Bank of England base rate. This means your mortgage payments can fluctuate, which can make budgeting more difficult.
Generally, fixed-rate mortgages offer more stability and are therefore more popular with buy-to-let investors. However, it’s worth comparing fixed and variable rates to see which one is right for you.
Fees
Mortgage fees can include arrangement fees, booking fees, and valuation fees, among others. These fees can add up, so it’s important to factor them into your calculations when comparing mortgages.
Some lenders offer mortgages with no upfront fees, but these may have higher interest rates or other fees. It’s important to weigh up the cost of the fees against the overall cost of the mortgage to determine which is the better deal.
Rental income
Lenders will take your rental income into account when assessing your eligibility for a buy-to-let mortgage. Generally, lenders require the rental income to cover between 125% and 145% of the mortgage payments.
It’s important to consider the rental income you’re likely to receive when choosing a property to invest in, as this will impact your ability to meet the mortgage payments.
Mortgage term
The mortgage term is the length of time over which you’ll repay the mortgage. The longer the mortgage term, the lower your monthly repayments will be, but the more interest you’ll pay overall.
It’s important to consider how long you want to hold the property for and how quickly you want to pay off the mortgage. If you’re planning to sell the property in a few years, a shorter mortgage term may be more suitable. If you want to hold onto the property for the long term, a longer mortgage term may be better.
Early repayment charges
Early repayment charges (ERCs) are fees you’ll have to pay if you repay your mortgage early. These charges can be substantial, so it’s important to consider them when choosing a mortgage.
If you think you may want to repay your mortgage early, it’s worth looking for a mortgage with low ERCs or no ERCs at all.
Eligibility criteria
Finally, it’s important to check the eligibility criteria for each mortgage you’re considering. Some mortgages may have stricter criteria than others, such as a minimum income requirement or a requirement for previous property investment experience
Of course a specialist buy to let mortgage broker can help you with all this, saving you time and potentially money.