Buy to Let mortgage

rhionm

Hi

Slightly confused after going to see a IFA today, Situation is we have a property (worth around £90K) that's mortgage free and have tenants in, we are looking at buying another property for around £120k to also rent out. If we were to remortgage the current property would we have to go for a Buy to Let mortgage on it or could we take out a 'normal' mortgage?

From what we were told if we went for a BTL mortgage we would have to charge a specific rent that the lender requested (such as 1% over the mortgage payment) where if we had a 'normal' mortgage we could set the rent as we like?

Many thanks

GMS

You would need a Buy to Let mortgage as it is rented out.

Rent would dictate the amount of borrowing. Typically a lender would want the rent to be 125% of the interest only mortgage payment.

A broker should be able to arrange this for you.

rhionm

Many thanks for that, this might be a stupid question but say the interest only repayment is £300 lender want's 125% which is £375 (?) we could then put the extra rent income into another account to reduce the mortgage when we come to remortgage?

Thanks for your help

ACG

Lets say your mortgage is £300 a month. The lender wants to see you earning atleast £375 a month.

Anything over and above the £300 is your profit. You can do what you like with this, overpay your mortgage, save it, go and have a few nights out....anything you like.

GMS

Some lenders may use a notional rate for calculation, say 5.99%.

The lender wouldn't want the additioanl amount as a payment, just to see the rent covering it so as to allow a buffer zone to help minimise payment issues.

You can do whatever you like with rent excess but be aware of the need to declare the income for tax purposes.

I assume you are looking to raise the deposit for the new purchase with the remortgage of the current property?

Be aware lenders usually require a minimum income too. Definitely worth seeing a broker as there are lenders who deal only through brokers.