These are mortgage products tailored to investors who rent out whole properties. With a residential mortgage your salary covers the mortgage repayments. In Buy to Let instead of your salary covering the mortgage repayments, the lender will assess the rental income you are likely to achieve to see if it sufficient to comfortably meet the mortgage repayments.
Typically you can borrow up to a maximum of 85% of the value of the property and the rental income must be 125%-130% of the mortgage repayments. (NB: Maximum borrowing is much lower than 85% now as a result of the current economics.)
As with residential mortgages, buy-to-let mortgages are available as either repayment or interest only.
Many investors take out an 'interest only' mortgage buy to let mortgage. Each month the repayment to the mortgage company covers only the interest on the loan. It does not repay any of the capital. The total outstanding loan remains unchanged over the period of the mortgage. Typically these mortgages will be over a 25 year period, after which the capital must be repaid in a lump, or another mortgage obtained.
With a repayment mortgage every month the payment amount covers the interest and the repayment. At the end of the mortgage term the whole mortgage will be repaid in total. In cash terms the monthly amount paid on a repayment mortgage will be higher than that for an equivalent interest only mortgage.
Tenants obviously. Some mortgage companies will place restrictions on the type of tenant that you can have. For instance, the lender may not let you rent to students. You should check that the product you buy will allow you to rent to the type of tenant that you are looking for.
Generally you may not live in a property if you have a Buy to Let mortgage on it.
If you are thinking about renting out your current home whilst moving to a new home, you may wish to consider a Let to Buy mortgage.
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