Mortgages for property investment
Most Buy to Let Mortgages are not regulated by the Financial Conduct Authority
If you want to purchase an investment property in the UK then you may require a mortgage to do so. Mortgages for purchasing investments aren’t the same as residential mortgages and these differences can be seen in the way these mortgages are organised, calculated and even regulated.
There are a few different types of mortgages for investment properties. The type of investment mortgage you need will depend on your circumstances and the type of investor you want to be.
The different types of investor
Accidental Landlords
An accidental landlord is someone who didn’t intend to become a landlord at all. Surprisingly this happens more often than you’d think. If you have inherited a property or found one to buy without having time to sell your own, you’re an accidental landlord.
Holiday Let Landlords
As Holiday Lets produce irregular and usually seasonal income you would need a specific type of mortgage in order to purchase one. Not all lenders will entertain this type of mortgage but we know all of the best places to look for your right Holiday Let mortgage.
Professional Landlords
If you’re building up a portfolio of investments or own a limited Buy to Let or management company then you’ll be classed as a professional landlord. You’ll want to understand how you can maximise your returns and work only with lenders who suit your business goals.
Novice Landlords
You could be a First Time Landlord or even a First Time Buyer, First Time Landlord. You’ll want to learn all about property investments and the mortgages you need to get started. Most are keen to avoid rookie mistakes and this can be helped by speaking to experts such as ourselves.
Types of investment mortgage
Their are a few types of mortgage which are typical for investment purposes, which one you need will depend on which type of landlord you intend on being, or in the case of an accidental landlord, find yourself being.
Buy to Let
A Buy to Let mortgage is a mortgage taken out specifically for the reason of renting a property. Most buy to let mortgages will be taken on an interest only basis. Typically Buy to Let mortgages will be calculated against the rental income for the property, and not the applicants income. However, with all types of mortgage, each lender will assess and calculate affordability differently.
Holiday Let
As holiday lets generate income differently from traditional buy to lets, lenders assess the affordability differently. This means that for a Holiday Let you will need to apply for a specific Holiday Let mortgage product.
Let to Buy
A Let to Buy mortgage is necessary when you wish you rent out your current residential home and withdraw some of your equity in order to purchase a new residential property. This process involves two mortgages, one for your existing property which will be converted to a Buy to Let mortgage and another for your onward purchase which will be a residential mortgage.
Let to buy is a scenario rather than an actual mortgage product. It’s where you remortgage your existing home onto a buy-to-let basis, often releasing additional equity from it at the same time which you can then use as a deposit on a new home.
How the Buy to Let remortgage works
You remortgage your existing property onto a buy-to-let basis so that you’ll be able to rent it out. It’s common to release additional equity from your property by remortgaging for an amount greater than your current outstanding mortgage balance. You can then use this money – along with any savings – as a deposit on your new home.
How the residential mortgage works
The residential mortgage on the new property is relatively straightforward. The lender assesses your income to work out how much you can borrow. The main difference is that they also must consider how your buy-to-let remortgage will affect your expenditure when calculating what you can afford.
Nonetheless, since the buy-to-let remortgage should be covered by the proposed rental income, it will almost certainly be excluded by the lender in the underwriting process for the residential mortgage application.
Learn about Buy to Let mortgages
