If you’re considering buying a property as an investment, one of the first questions you may have is: can you get a mortgage on an investment property?
The short answer is yes. However, getting a mortgage for an investment property is different from taking out a standard residential mortgage. Lenders will look at a number of factors, including the property, your financial circumstances and the potential rental income.
Understanding how investment mortgages work can help you decide whether buying a property to let is right for you.
What is an investment property mortgage?
If you’re purchasing a property with the intention of renting it to tenants rather than living in it yourself, you will typically need a buy-to-let mortgage rather than a standard residential mortgage.
Buy-to-let mortgages are designed specifically for landlords and property investors. As well as considering your personal finances, lenders will generally look at whether the expected rental income from the property is sufficient to cover the mortgage payments.
The exact requirements can vary between lenders, so it’s important to understand the criteria before making an offer on a property.
How much deposit do you need?
One of the main differences between a residential mortgage and a buy-to-let mortgage is the deposit.
Buy-to-let mortgages commonly require a larger deposit than residential mortgages. A deposit of around 25% is often required, although the amount can vary depending on the lender, property and your circumstances.
For example, if you were purchasing a property for £250,000 and needed a 25% deposit, you would need £62,500 upfront, with the remaining £187,500 potentially being covered by the mortgage.
A larger deposit can also affect the mortgage products and interest rates available to you.
How does rental income affect your mortgage?
For an investment property, the expected rental income can be an important part of the mortgage application.
Rather than simply looking at whether you can personally afford the monthly mortgage payments, a lender may assess whether the anticipated rent will provide enough coverage for the mortgage.
This is sometimes referred to as a rental coverage or interest coverage requirement.
For example, if a property is expected to generate £1,500 per month in rent, a lender may assess whether this provides sufficient coverage against the mortgage payment under its lending criteria.
This is why getting a realistic rental valuation before purchasing an investment property can be extremely useful.
Who can qualify for a buy-to-let mortgage?
There isn't one set of requirements that applies to every lender. However, lenders may consider factors such as:
- Your income and overall financial position
- Your credit history
- The size of your deposit
- The value and type of property
- The expected rental income
- Your existing mortgage commitments
- Your experience as a landlord
- Your age and the proposed mortgage term
Some lenders may have specific criteria around the type of property you want to purchase or the type of tenancy you intend to offer.
If you're already a landlord, your existing property portfolio and mortgage commitments may also be taken into consideration.
What about first-time landlords?
You don't necessarily need to already own rental properties to apply for a buy-to-let mortgage.
Some lenders offer mortgages to people becoming landlords for the first time, although their lending criteria may differ from those available to experienced landlords.
If you're buying your first investment property, it's particularly important to understand the costs involved. The mortgage deposit is only one part of the money you'll need. You should also consider taxes, legal costs, mortgage fees, insurance, maintenance and periods when the property may be vacant.
Don't forget the other costs
Before buying an investment property, it's worth looking beyond the mortgage itself.
Depending on your circumstances and the property you're purchasing, costs could include:
- Stamp Duty Land Tax
- Mortgage arrangement and valuation fees
- Legal and conveyancing costs
- Landlord insurance
- Property maintenance and repairs
- Letting and management fees
- Compliance and safety requirements
- Potential periods without rental income
Building these costs into your calculations can give you a clearer picture of the potential financial position of the investment.
Is an investment property mortgage right for you?
Buying a property to let can be a significant financial commitment, and the right mortgage will depend on your circumstances, the property and your investment plans.
Before committing to a purchase, it's worth calculating the expected rental income alongside the mortgage payments and other costs associated with being a landlord.
A professional mortgage adviser can also help you understand which mortgage options may be available based on your circumstances.
Thinking about letting your property?
Finding the right mortgage is only one part of becoming a landlord. Once you've purchased your investment property, you'll also need to think about finding suitable tenants, managing the property and keeping up with your responsibilities as a landlord.
At Interlet, we can help make the letting process easier, from preparing your property for tenants through to managing the ongoing tenancy.
If you're considering buying an investment property or already own a property you'd like to let, get in touch with Interlet to find out how we can help.
interlet@interlet.com
02077956525
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