If you are planning to buy a property to rent out and have no intention to live in that property even in the future, then you will need a buy-to-let mortgage.
You cannot take out a standard residential mortgage for a Buy to Let property. There are many Lenders who offer buy-to-let mortgages for first time landlords, professional landlords and experienced landlords.
Deposit for buy-to-let
A buy-to-let mortgage is similar in many ways to a standard home loan. However, there are some important differences. For example, the interest rate is usually a bit higher than residential mortgage. You will also require a bigger deposit on a buy-to-let property – usually 25% of the purchase price.
For a buy-to-let mortgage, Lender assess expected rental income of the secured property and most lenders do rental stress test to figure out the maximum loan can be borrowed.
Usually the annual rental income must be at least equal to 125% of the annual interest payment determined by interest stress rate of 5.5% (not the actual interest rate).
For a buy to let mortgage you can choose how you want to service the loan either interest only, capital repayment or part Interest and part repayment.
Most investor choose interest only, not repayment. In other words, you pay only the interest each month and clear the capital debt when the property is sold. There are several advantages to an interest-only loan if you are buying a property to let. Mainly, the monthly payments are cheaper than a repayment mortgage. However, the downside is the lack of capital repayments to reduce your outstanding debt.