Buy-to-Let Mortgages
Buy-to-let mortgages are provided for property purchases or remortgages for investment in the private rental sector. How much you can afford to borrow can be based on how much you earn or the amount of rent expected from the property. Some lenders may also take your existing mortgage or other loans into consideration.
Buy-to-let mortgages can be fixed, capped, discounted or variable. Some may be base rate trackers, or have cashbacks and flexible features.
With a variable rate buy to let mortgage the amount you repay increases or decreases in line with interest rate changes. This means that you cannot predict the monthly cost of the borrowing. In times of falling interest rates variable rate mortgages are beneficial, as your mortgage repayments will reduce. however, if interest rates rise then so will repayments.
If you choose a fixed rate buy to let mortgage your monthly repayments will not change for the period of the fixed rate, regardless of the interest rate in the marketplace. This may be important to you if you have a limited budget as you are protected from rising interest rates. however, if the variable rate falls below the fixed rate level, your repayments will not fall. At the end of the fixed rate period your mortgage will usually be converted to a variable rate.
A capped rate buy to let mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate; thus you know the maximum amount your monthly repayments could rise to. however, if the basic interest rate falls below the capped rate, repayments will also reduce. Sometimes these capped rate mortgages also have a ‘collar’. This means the lender has set a minimum level below which the rate you pay will not fall.
A discounted buy to let mortgage offers you reduced repayments for a given term. The lender gives a discount from their standard variable rate. For example, the variable rate may be 5% with a discount of 1%, making your initial interest repayment rate 4%. If the variable rate on which your discount rate is based falls, your repayments will fall. however, if the lender's standard variable rate rises, so will your repayments. Whilst a discounted rate may be helpful initially, you should consider how much your repayments will be when the discounted period ends.
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