Buy to let properties are houses that are let out to tenants. They are bought as business investments by both individuals and (Special Purpose Vehicles) SPVs specifically for this reason.
The BTLs are only looked at by the Lenders based on:
Rental income
Property value
Mortgage term
Unlike a residential property, the affordability is based on the rental income Vs the property value, rather than the ability for the mortgage client to make the payments.
Some lenders put a minimum income of £25,000 for the applicant, but not all.
The rental income is usually expected to be either 125% or 145% at a maximum, above the mortgage payments, at a stressed interest rate of around 5.5%.
This means, if interest rates went up to 5.5%, could the mortgage still be affordable and the payments still be paid.
They allow investors to make money from renting a property out, while paying down the mortgage over time. The other most used option is an interest only mortgage, where the mortgage is not paid down over time, only the interest is paid and the capital will be paid off the end of the term. Often Investors will borrow money against the property as the value increases and use the value at the end to clear the interest only balance, although this doesn't always work.
Always Wright Mortgages
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