What’s the difference between a mortgage and a buy to let mortgage?

For most people, buying a home is one of the biggest financial commitments they will ever make. But for those looking to invest in property, there is a different type of mortgage to consider: the buy to let mortgage. Here at Aventine Property, we offer buy-to-let in Leeds.

In this article, we’ll explore the key differences between a mortgage and a buy to let mortgage, looking at the requirements, benefits and risks associated with each.

What is a mortgage?

A mortgage is a loan that is used to purchase a property. The borrower makes monthly repayments to the lender, which consist of both the amount borrowed (the principal) and the interest charged on the loan.

Mortgages are available to anyone who wants to buy a property to live in, whether they are a first-time buyer, a home mover or someone looking to remortgage their existing home. In order to be eligible for a mortgage, the borrower will typically need to meet certain criteria, including having a good credit history, a steady income and a deposit of at least 5-10% of the property’s value.

Mortgages are usually offered over a period of 25-30 years, although shorter or longer terms may be available depending on the lender and the borrower’s circumstances. The interest rate on a mortgage can be either fixed or variable, with fixed-rate mortgages offering the security of a fixed monthly payment for a set period of time, while variable-rate mortgages may offer lower initial interest rates but can fluctuate over time.

What is a buy to let mortgage?

A buy to let mortgage is a type of mortgage that is specifically designed for people who want to buy a property to rent out to tenants. Unlike a standard mortgage, where the borrower is buying a property to live in themselves, a buy to let mortgage is used to purchase a property with the aim of generating income through rental payments.

Buy to let mortgages typically require a larger deposit than standard mortgages, often around 25% of the property’s value. This is because lenders consider buy to let mortgages to be higher-risk loans, as the borrower is not intending to live in the property themselves and may therefore be more likely to default on the loan.

In addition, the interest rates on buy to let mortgages are often higher than those on standard mortgages, as lenders perceive the risk to be greater. However, the rental income from the property can be used to cover the mortgage repayments, making it a potentially profitable investment.

Who can get a buy to let mortgage?

Buy to let mortgages are available to anyone who wants to invest in property and rent it out to tenants. However, the eligibility criteria for buy to let mortgages can be stricter than for standard mortgages.

In general, lenders will want to see that the borrower has a good credit history and a stable income, as well as sufficient funds to cover the deposit and other associated costs, such as legal fees and stamp duty. In addition, lenders will want to ensure that the rental income from the property is sufficient to cover the mortgage repayments, often requiring that the rental income is at least 125% of the monthly mortgage payment.

Buy to let mortgages are usually only available to borrowers who already own their own home, although some lenders may consider first-time buyers who are looking to invest in property for the first time. It is always advisable to seek independent financial advice before applying for a buy to let mortgage, as the eligibility criteria can vary significantly between lenders.

What are the benefits of a buy to let mortgage?

One of the main benefits of a buy to let mortgage is that it allows investors to generate a regular income through rental payments. This can be especially attractive for people who are looking for a long-term investment with the potential for capital growth over time. Read more here about the difference between mortgage and buy to let mortgage.

In addition, buy to let properties can be a good way to diversify a portfolio, spreading risk across different asset classes.

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