Buy to let mortgages
A buy-to-let mortgage is a loan secured against a property, where the borrower intends the property to be rented to tenants rather than as their residence.
Because of this difference, the criteria that the buy-to-let mortgage lender considers includes projected rental income as well as, or instead of, earnings multiples.
Buy-to-let mortgages are a relatively new product, the first ones hitting the market in the early 1990s, but are now offered by most major mortgage lenders.
To secure a deal on buy-to-let terms (rather than one based on earnings) the borrower needs to show they can generate enough rental income to cover the interest on the mortgage. Typically they will have to show that the monthly rental income will be worth between 125 per cent and 130 per cent of the monthly interest payment.
Buy-to-let mortgages are available as an interest only mortgage or as a repayment mortgage. A repayment buy-to-let mortgage is more suited to people looking at property as a long-term investment or as a pension. People seeking to grow their income, and possibly their portfolio, faster tend to opt for interest-only mortgages.
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