How to Find the Cheapest Buy to Let Mortgage

Buy to let has become a huge obsession in the UK. While many property investors in the UK are doubtful whether it´s a good time to buy property at all, many who are keen on buying a property are likewise unsure if they can find a cheap mortgage to provide financing for a purchase. The good news is that despite the drop in number of available mortgages, there are ways you can determine if a deal is a competitive and suitable one or not.

Rules on borrowing

While the amount you can borrow depends on the lender, the maximum ranges from as little as £25,000 to £1 million for each property. Lenders will typically lend 85% of the property price – meaning you are required to put down a deposit of 15% as a minimum. But if you can pay 20% or 25% deposit, you will be offered more competitive rates. The lender will likewise consider the amount of rent you earn from your property. The general rule is that the rental income should be in the range of 100% to 150% of the mortgage payment.

Choosing a mortgage

Before choosing a mortgage, you need to ask yourself how much you can afford to pay and how you will pay for it. If you take out a mortgage, you should do the maths and find out the percentage of the property you need to borrow. The loan size is typically tied to the anticipated rental income. Most often your lender will prefer that your monthly income from rents to be significantly higher than your monthly mortgage dues.

Your mortgage choice

As a property investor, your choices may include a repayment mortgage or an interest-only loan. Opting for a repayment mortgage will require you to have life insurance together with your mortgage loan. With an interest-only loan, you may be required by a lender to have an appropriate investment product to repay the loan at the end of the mortgage term.

Other choices include variable rate and fixed rate mortgages. A variable rate mortgage means your payments will move up or down while a fixed rate mortgage ensures fixed mortgage repayments for a fixed period of time. One of the most important things to consider is that mortgage payments could increase during periods when interest rates rise depending on the mortgage type you opted to get. The best way around this is to get the advice of a lender.

What to consider when finding the most affordable mortgage

There are three things to take into account when looking for the cheapest mortgage:

Rates. Many lenders sell their mortgage products by offering low headline rates which can at times be for the short-term. So before settling for the lowest interest rate you´ve found, make sure you do your calculations in order for you to find out how much you´ll be paying once the rate expires. This will help you avoid being bound to higher rates and early repayment charges.

Fees. A lot of mortgage lenders often couple low rates with appealing arrangement fees, but after calculations, the deals often turn out to have higher costs than the rates imply.

The Loan-to-Value Ratio. The LTV ratio refers to the proportion of the property´s value you are borrowing as a mortgage. If you want to buy a house worth £100,000 and you have a deposit of £10,000, you require an LTV of 90%. Because of a declining market, the lender will charge you more for a 90% LTV than it would in a rising property market. Borrowers who only need to borrow 60% of their property´s value will be charged less because they are lower risk clients. When you´re shopping for a good mortgage deal, you will find that there are many competitive deals for borrowers with 40% equity/deposit upfront.

Purchasing a mortgage is one of the biggest financial decisions you will have to make in your life. Thus it becomes extremely crucial that you find the best mortgage or remortgage deal.