When it comes to deposits, size isn’t the only thing that matters
The minimum deposit you need to secure a buy-to-let mortgage varies between lenders. Generally, it is at least 25% of the purchase price. Buy-to-let mortgages differ from homebuyer mortgages. The amount of deposit you put down could have a positive effect on your mortgage offer. And accessing the best deals needs a different approach.
Do you need a buy-to-let mortgage?
One question I’m often asked is if you need a buy-to-let mortgage when you invest in property. The answer is yes. If you intend to rent out your property, an ordinary residential mortgage won’t allow you to do so. Your insurances could be null and void, and the lender could repossess your property.
Lenders provide different financing solutions to property investors because they believe the risk is bigger. This higher risk is reflected in the bigger deposit required, and with higher mortgage rates than charged for a home loan. Property investor loan applications are also assessed differently.
How do buy-to-let mortgages differ from homebuyer mortgages?
When you invest in property, the lender treats your investment as if it were a business – which, of course, it is. Here are the main differences between residential mortgages and buy-to-let mortgages:
The amount you can borrow is calculated in a different way. When you buy a home, your borrowing ability is based on your earnings. When you invest in property, the lender will assess the property’s rental income potential as well as other factors.
- Your arrangement fees are likely to be higher for a buy-to-let mortgage
- Buy-to-let mortgage rates are usually higher
- You’ll probably only repay the interest rather than the capital
- The buy-to-let mortgage market is not regulated like the homebuyer mortgage market
Does the deposit size make a difference to the mortgage?
While the minimum deposit is 25% in most cases, many lenders ask for 30% or even 40% from buy-to-let investors. What they also want to see is good rental prospects and a good credit history.
Many property investors use fixed interest buy-to-let mortgages to finance their investment. This provides peace of mind during the period of the fix. There are some very good rates on fixed interest investment mortgages. Additionally, the higher the deposit you put down, the lower the interest rate you are likely to pay – proving all the lender’s criteria are met (or exceeded).
How much is the average deposit for a buy-to-let investment in the UK?
According to research and data from moneysupermarket.com, the average loan-to-value (LTV) ratio of buy-to-let mortgages in the UK is currently 69%. In other words, the average deposit made was 31% of the purchase price.
In cash terms, the average deposit put down by property investors is £62,309. That’s a sizeable vote of confidence in how residential property boosts investment returns in the low-interest rate environment.
How do you get the best buy-to-let mortgage?
There are thousands of mortgage products on the market. Trying to find the best for you is like trying to find a needle in a haystack. One mistake that many investors make is approaching the lender that holds the mortgage on their home. Few high street banks offer buy-to-let mortgages, and those that do probably won’t offer you the best rate.
You should always use an experienced buy-to-let mortgage broker. They:
- Understand the market
- Will assess your situation fully
- Know which lenders are most likely to offer the mortgage with the best terms and conditions for your investment
We have a bank of mortgage brokers whom we are happy to recommend. They have helped us to help hundreds of other investors build successful property portfolios. If you would like to discuss property investment strategies or would like a mortgage broker recommendation, get in touch with Gladfish today on +44 207 923 6100.
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