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Buy To Let Mortgages Explained

There are many different types of mortgages available to you, but for those seeking to develop a passive income stream through the rentals market, a buy to let mortgage is essential.

What is a Buy to Let Mortgage?

Simply put, a buy to let mortgage is a mortgage that is sold specifically to people who are looking to buy property as an investment as opposed to a mortgage for a home of their own.

If you are planning to rent out a new property or consolidate an existing property portfolio, the majority of lenders will prefer you not to finance your purchase with a standard residential mortgage.

Who Are Buy to Let Mortgages Aimed at?

Buy to let mortgages are a great tool for both seasoned investors with an existing portfolio of properties as well as new landlords looking to take their first steps into the rental property market. Not everyone is entitled to take one out though: as a form of commercial financing, buy to let mortgages are more expensive than the typical mortgage and require deposits of between 25% and 40%.

How do Buy to Let Mortgages Work & How Much Can You Borrow?

Most borrowers will look to take out an interest-only mortgage for their chosen property.

The mortgagee then only pay the interest on the loan as it accrues every month, generally from the proceeds of the rent they collect. The capital debt – the full amount of the mortgage – is paid at the end of an agreed term.

How much you can borrow will also depend on the level of your deposit as well as your wider commercial and personal circumstances.

The tax allowances for buy to let mortgages have also changed, however many landlords will choose to set up limited companies to maximise their portfolio. We would always encourage you to access specialist advice when setting up a limited company.

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