These types of mortgages are designed for property investors and private landlords, who do not intend to live in the purchased property.
Buying additional property for the purpose of letting it to earn rental income can be risky and complicated since there is no guarantee that house prices will rise nor that rental income will be uninterrupted.
That said, letting a second property to tenants could return respectable financial rewards over the longer term, but it’s important to properly consider the risks, as well as rewards, involved in ‘Buy to Let’ first.
When buying a rental property, you will need to decide whether your investment objective is income or capital growth. Are you looking to cover the monthly costs and perhaps make a profit to supplement your income? Or, are you looking to make a profit later upon the sale of the property, with the assumption your property’s value will increase in value over time? The decision may affect the type of property you purchase, its location, and also the risk involved since there is no guarantee that property prices will rise.
If you can’t buy the property outright you will need to consider a Buy to Let mortgage. When it comes to this type of mortgage there are several differences to be aware of.
Normally a lender’s decision about whether to offer a mortgage or not, will be based on the rental potential of the property as well as your own income, though in some cases, your income may not be considered at all.
Usually, a minimum of 20% to 30% of the property’s value is required as deposit, which is often higher than the deposit required for other types of mortgage, and you can expect Buy to Let mortgages to have higher interest rates applicable to them. It’s worth also mentioning that, as of 1 April 2016, there is an additional 3% in Stamp Duty to pay if you are buying a second property whether as a home or for purpose of letting.