An In-Depth Guide On Buy-To-Let Mortgages In The UK
Buying a UK property for rental purposes is a great way to make sustainable passive income.
With the market poised to make a recovery after years of turmoil from Brexit and the political uncertainty, now is an ideal time to invest in a UK rental property.
However, there are rules and regulations unique to the UK property market, which foreign investors tend to overlook or be unaware of.
One important regulation is buy-to-let mortgages. It’s a requirement when buying a property for rental purposes.
Even though it’s similar to a standard residential mortgage, there are some fundamental differences that are critical to foreign investors.
This guide will give you all the info you need regarding buy-to-let mortgages, and how you can use it for your UK property purchase.
You can only get a standard residential mortgage if you plan to live in the property you purchase. For foreign investors, that is usually not the case, which makes buy-to-let mortgages a very common procedure in this part of the world.
You can also get a residential mortgage if your family members are to live in the property, rather than yourself.
A buy-to-let mortgage usually requires a larger deposit. This is because mortgage providers see it as higher risk. Rent collection is often a problem, and there tend to be times when the property is not occupied.
The exact deposit amount usually ranges between 20-40%. To get the best rates, it’s important to do your due diligence and check in with various mortgage providers.
(Alternatively, you can go to the end of this article, fill in your details and we’ll introduce our reliable and efficient mortgage provider to you)
If you don’t live in the UK, the requirements to be considered for a buy-to-let mortgage is more complicated. But it’s definitely doable if you have the right experts to guide you through this process.
The biggest hurdle to overcome is the checks on identity, income, and the source of funds. Anyone buying a UK property has to undergo these mandatory checks, but they are usually more stringent when it comes to foreign buyers.
Although it can be seen as a hassle, this is an important process to prevent money laundering through property, and to protect the interests of the lender.
To help smoothen the process, buyers can seek the help of reputable mortgage advisors who can make things go a lot faster, with minimal complications.
This amount is usually determined by the rental you can realistically expect for your property. Most lenders require you to receive between 125%-145% of your monthly interest payments in rental income. Some lenders, however, will assess the overall ‘affordability’ of the loan, taking into consideration your personal income and expenditure, alongside the anticipated rental income.
To get a better sense of this number, you can research the rental fees of similar properties in the area, or get a surveyor or estate agent to verify your property’s rental value.
So let’s say your mortgage provider requires your rental value to be 125% of your interest payments. To cover monthly interest payments of £1,500, the rent woud need to value at £1,875 per month or above.
Another key detail to consider is the loan-to-value (LTV) ratio. This is calculated by the size of your loan against the total value of your property.
For example, if your property is valued at £200,000 and your mortgage is £180,000, your LTV ratio would be 90%, and you’ll pay a deposit of £20,000.
A typical minimum deposit requirement for a Buy-to-Let mortgage would be 25%, resulting in an LTV ration of 75%.
You may be a little confused right now. But rest assured that it’s actually not that complicated.
We work alongside Capricorn Financial Consultancy, who are the largest independent mortgage brokerage in London, with access to all of the UK lenders, and a number of overseas banks. Capricorn also have an office in Singapore, so we’d happy to introduce you in order to arrange a face to face or telephone consultation.
OGPS has helped hundreds of buyers/investors enjoy fuss-free UK property purchases, because we have the experts to speed up this process for you.
However, this doesn’t mean that you should just leave everything to us.
As a responsible buyer, you should at least be familiar with the property laws and regulations in the UK, so that you can invest your money with purpose and peace of mind.
We hope that this article gave you more insights into the buy-to-let mortgage practice; an important aspect of UK property investment.
If you like to find out more about how exactly buy-to-let mortgages can work for you, feel free to leave your contact details below, and we’ll get back to you shortly!
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