Buy to let is a type of mortgage that allows you to buy a property and then rent it out. It seems simple enough but it comes with more baggage than a regular mortgage and is also harder to obtain. A recent trend has seen many people remortgage their house for equity release purposes in order to get a buy to let mortgage.
If you’re looking to invest in property, a buy to let mortgage is something you will likely need. Maybe you already own a home and want to put your extra money into a new property that can make you some passive income while the tenants pay off the mortgage for you.
Investing in property is usually a safe bet, as property prices have been steadily rising for quite some time now with minimal change of a property market crash. But before you jump in and buy a property that you wish to let, you will need to understand the ins and outs of a buy to let mortgage.
What is a Buy to Let Mortgage?
A buy to let mortgage is a specific type of mortgage for buyers that want to rent out their property as opposed to living in it themselves. Pretty straight forward, right? While the explanation is relatively simple, the boxes you have to tick in order to be approved are a different matter.
You have to meet different, stricter criteria in order to get a buy to let mortgage. The biggest thing that separates this from a normal mortgage is that In the vast majority of cases, you have to already own your home if you want to get an additional buy to let mortgage. Sorry first-time buyers! As with normal mortgages, you also need to have a good credit rating and earn over £25,000 a year. There are also other parameters that come into play to do with age and occupation.
How to Get a Buy to Let?
Now we understand what a buy to let mortgage is and what is required, how can you actually get one?
One of the big caveats is that you already need to own a house, meaning that you have a mortgage on a property in your name, not that you have already paid it off. Unless you have been saving up for half your life or found a bargain for your current property, you probably don’t have enough money lying around to use as a deposit for an investment property; this is where equity release comes in.
Equity release involves remortgaging your existing home in order to free up the money you have in the home to use for home improvements or, in this case, to use as a deposit for your buy to let property.
In this case, equity is the amount of the property you actually own. For example, if you paid a 10% deposit, you would own 10% of the property, or in other words, you have a 10% equity. But, the longer you have been paying off your mortgage, the more equity you will have. Similarly, if the property goes up in value a few years down the line, the percentage you own will now be worth more, and you will therefore owe back less. By remortgaging and getting a better interest rate, you can free up some of that extra equity to put towards your new buy to let.
How much equity do I have?
Before beginning the process of securing a new buy to let property or remortgaging your house, you should probably work out how much equity you have to release from your current property. In order to do this, you will need to speak to an estate agent and your mortgage provider as you need to calculate how much your house is worth now and discuss a new interest rate if you were to remortgage.
This can be an arduous process but it shouldn’t deter you from releasing equity to purchase a buy to let. Property is a great investment and using equity release to facilitate it has risen dramatically over recent years.
Now you know everything you need to about buy to let. If you were considering getting a second property as an investment but weren’t sure how to raise the capital for the deposit, now you know about equity release. This popular remortgaging strategy has been used by investors recently to secure investments they didn’t necessarily have the funds for. While a buy to let mortgage does usually come with higher interest rates and is harder to get, once it is secured and you have your investment property sorted with tenants living in it, you can sit back and relax as your new house is being paid off for you.