How to Get a Buy to Let Secured Loans
Purchasing a buy to let property is often an excellent form of investment. It gives you a steady income and as property prices change can potentially earn you a decent return. Whether you are thinking about purchasing your first buy to let property, or are a seasoned landlord seeking your next investment, knowing how to fund the purchase can be a struggle.
There are various options available when it comes to financing a buy to let property, and it is essential you consider them all before you make a final decision. This guide covers how to finance a buy to let property, as well as some expert tips and advice from our experts.
Financing A Buy To Let Property With A Mortgage
One of the most traditional methods of financing a buy to let property is through a buy to let mortgage. These mortgages are designed for the specific reason of buying a property in order to rent it out. They work in a very similar way to a regular mortgage. However, there are some key differences that you should know about:
- Larger Deposits: Lenders often see buy to let mortgages as a potential risk because the properties are going to be lived in by tenants and not the property owners. To overcome this increased risk, they often ask for higher deposits than with a residential mortgage.
- Higher Interest: Another way lenders will combat the increased risk of a buy to let mortgage is to increase the interest rate slightly. Buy to let mortgages usually have an interest rate of about 1% higher than regular mortgages.
- Interest Only: Many buy to let mortgages are offered on an interest-only basis. This means that the monthly repayments are only covering the interest on the borrowed amount, instead of paying off the loan itself. This means the amount borrowed will never decrease. Many landlords then pay this off in full by selling the property or taking out another mortgage.
Who Can Get A Buy To Let Mortgage?
There are certain restrictions in place when it comes to by to let mortgages, and generally, you will be approved for a buy to let mortgage if:
- You are looking to inves in property.
- You already own your home, either with an outstanding mortgage or outright.
- You have a good credit rating and history.
- You earn over £25,000. Anyone earning less than this may struggle to be approved.
- You are within the lender’s age limits. Many lenders will have an upper age limit of 70 to 75 on buy to let mortgages.
What Deposit Is Needed For A Buy To Let Mortgage?
The majority of buy to let mortgage lenders will require a high deposit. In most cases this is around 25% of the property value; however, this could be as high as 40% depending on the lender. This is because it helps to protect the lender against the increased risk of lending for buy to let.
A higher initial deposit means that the amount paid every month will be less and the amount of interest paid throughout the term will be decreased.
The amount that you can borrow with a buy to let mortgage is usually determined by the rental income of the property in question. Most lenders will require the rental income to be around 30% higher than the mortgage repayments.
Remortgaging To Finance A Buy To Let Property
One common way of raising the finance needed to purchase a buy to let property is by remortgaging an existing property. If you currently own your home, then you could remortgage this to release funds to invest in another property.
Buy to let properties typically need a high deposit which could be anywhere between 25% and 40% of the property value. By remortgaging your existing property and releasing some of this equity, you could use these funds to cover the deposit of a buy to let property.
How Much Equity Is Needed To Remortgage For Financing Buy To Let?
Before you can decide if remortgaging is the best option for you, you will first need to consider the amount of equity you have in your home. You can calculate your equity by taking the value of your property and taking away the balance of your current mortgage. Lenders will look at your loan to value (LTV) which is the amount borrowed as a percentage of the property value.
Many lenders will offer up to 85% LTV on a buy to let property, meaning you can borrow nearly the entire property value. Your maximum LTV will also depend on your personal circumstances such as credit history.
Financing A Buy To Let Property With A Secured Loan
Secured loans are also sometimes called second charge mortgages or homeowner loans, and they are commonly used for property refurbishments and debt consolidation. They can also be a great option for financing a buy to let purchase; however, many borrowers don’t consider this option. Using a secured loan to purchase a buy to let property will mean that the loan amount is secured against your current home or another buy to let you already own.
Why Use A Secured Loan For Buy To Let?
Using a secured loan for financing a buy to let purchase has its advantages in certain situations. If you do not have the cash available for a buy to let mortgage deposit, but do not want to remortgage your current property due to early exit fees or low-interest rates, then a secured loan can help.
You can keep your existing mortgage as it is, and then borrow additional funds using your home’s value as security. Secured loans are often easier and faster to arrange than a mortgage, which makes them ideal for situations where you need the funds quickly.
Any lenders you have with first charges on your property, such as an existing mortgage provider, may need to provide consent before a second charge can be added.