Financing

If this is your first investment property, then chances are you will require a buy-to-let mortgage.

As with any financial agreement or loan, it is important that you speak to a financial advisor before making a final decision. You will also need to ensure that your credit history is up to date, and in good standing, and have worked out how much you can afford to borrow.

Loan to value (LTV)

If you have purchased a property before to live in, you will be familiar with the term ‘loan to value’. This figure is presented as a percentage and is the proportion of the property’s value that the lender is willing to lend you.

With a buy-to-let mortgage, the same rules apply and lenders will usually lend up to 80% of the property value. At 80% LTV, this would mean that a property costing £100,000 would require you to have a deposit of £20,000.

Buy-to-let criteria

When applying for a buy-to-let mortgage, the following criteria will be considered by a lender:

  • Your personal income
  • The property you are looking to buy
  • Potential rental income
  • Your credit history

A little organisation goes a long way so ensure you have collated print-outs of all the relevant documentation. This will help the lender not only see that you are serious and have done your homework, but should also help to move things along quicker.

Knowing what you can afford

Importantly, lenders will want to make sure your anticipated rental income will not only cover the mortgage payment, but also an added comfort level of around 25%. This will vary across the different companies offering buy-to-let mortgages but is worth adding into your initial calculations prior to speaking with an advisor or lender. As with any mortgage or loan, you will not want to spread yourself too thinly.

When thinking about what you can afford, you should also include a contingency pot to cover additional, often forgotten, outgoings that you will need to cover, such as service charges and maintenance costs. If you are unsure of exactly how much these costs will be, it is better to overestimate these rather than underestimate.

Visit our mortgages section to find out more and to work out what you can afford to borrow.

The location that you are looking to purchase a property in will also have a considerable impact on your financing options due to differences in average house prices. If you are not tied to a specific area or location, consider your options as casting your net wider may allow you to buy a similar sized property at a reduced cost.

Take a look at the ‘when and where to buy’ section to find out more.