Introduced to cater for the increase in investment purchases during the last property boom, the buy to let mortgage was designed to make it easier for people to invest in multiple properties and rent them out to tenants.
Buy to let mortgages are unlike the kind of mortgage that is taken out on your own home in that it doesn’t necessarily rely on your income as a primary determining factor of whether or not you can afford the loan (mortgage) you’re taking out on the property.
How is the buy to let mortgage calculated?
The mortgage you take out on your own abode relies on your income as an indicator of whether or not you could realistically afford to keep up the repayments.
However, with a buy to let mortgage, the bank usually requires a much larger deposit – which, currently, is usually set at 25% of the property’s value.
Not only this, but the lender must also feel satisfied and confident that the average monthly rental income from letting out the house will be, at the very minimum, a little over and above the cost of the mortgage repayments each month – lenders usually look for a return of 125%, as a rough guideline.
For example then, if your monthly mortgage repayment is £200 per month, the lender will expect your minimum monthly rental figure to be 125% of £200. So – that’s the full amount (100%) plus a quarter of the full amount (+ 25% = 125%).
So, if your monthly mortgage repayment is £200, a quarter of that is £50 – so it’s £200 + £50 = £250.
However, it’s not only these factors that matter. While buy to let mortgages were relatively straightforward to obtain before 2008’s recession, household income and an excellent credit record have emerged as other factors that lenders now consider.
You can calculate the cost of your mortgage or buy to let mortgage at emortgagecalculator.co.uk, a handy mortgage calculator tool that helps you find the right house within the right budget.