The property can grow in value, which would produce a capital gain when you sell. The rent on a buy-to-let property should cover:
- the cost of the mortgage
- expenses, typically building insurance, repairs and any letting agent’s fees
Unless you are a cash buyer, you will need a buy-to-let mortgage as a standard residential mortgage only applies if you plan to live in the property. A buy-to-let mortgage will enable you to rent out your property to tenants – this is not permitted with a conventional mortgage.
Buy to let mortgages are similar residential mortgages but with some key differences:
- The amount you can borrow is based on how much rent the property can generate versus the cost of the mortgage. Typically, lenders will want your expected rental income to meet at least 125% of the monthly interest payments on the loan.
- Buy-to-let lenders may also require you to have a minimum salary, typically £20,000-£25,0000.
- Buy-to-let mortgage interest rates are higher than standard mortgages due to the greater risk involved.
- The minimum deposit is generally 25% of the purchase price and the cheapest deals require a deposit of 40% or more.
- Arrangement fees can be higher than on a standard residential mortgage.