Compare the best Interest Only Buy to Let Mortgages Rates
An interest only buy to let mortgage refers to purchasing a property with the intention to make a profit by renting it out to the public. When it comes to repayments, you are only required to pay the interest each month to the mortgage provider. This means that you do not have pay any capital repayments until the end of your mortgage term which could be in 5, 10, 25 or 40 years time.
By paying interest only, it is a much cheaper and affordable way to make mortgage repayments and it allows you to save up for a number of years so that you can repay your capital at the end.
There has been a steady increase in the number of people taking on an interest only buy to let mortgage. The number of people taking out interest only mortgages has jumped from around 3.4 million people in 2010, to around 3.8 million people in 2012. There are many lenders and creditors who you can turn to if you are looking for an interest only buy to let mortgage. However, there are a number of considerations that need to be taken into account prior to borrowing for such a mortgage.
What Are Interest Only Buy To Let Mortgages?
Interest only buy to let mortgages mean that you pay interest only on your mortgage and this is different from other buy to let mortgages. Other buy to let mortgages will usually require you to pay interest and capital together each month and the rates are calculated so that it is affordable. A fixed buy to let mortgage means that your repayment method includes both interest and capital and the rate you pay is fixed throughout your mortgage term. A tracker buy to let mortgage means that your rate is tracked with the Bank of England Base Rate and can fluctuate.
Interest only buy to let mortgages are very popular amongst experienced property tycoons and property buyers, who use such mortgages as a way to rapidly increase their property portfolio by minimising their overall costs; allowing them to invest in more than one or two properties in one go. Interest only buy to let mortgages though are not regulated in the same way as residential mortgages. Therefore, you will not be covered by the Financial Conduct Authority (FCA) should there be any concerns with the deal brokered.
Furthermore, most interest only buy to let mortgages are not available on the high street so using an impartial broker or comparison site like Quiddi Compare allows you to see a number of competitive deals in one please.
##Cheap Interest Only Buy to Let Mortgages Since you are paying your capital at the end of your mortgage term, an interest only mortgage is significantly cheaper. The reduced payments mean that there is more money for you to keep at the end of each month from the rent charged on the property. In fact, the amount paid per month for an interest only buy to let mortgage, can work out to be as much as 45% lower than for a traditional buy to let mortgage’s repayment amounts. Additionally, an interest only buy to let mortgage is more tax efficient as you pay far less tax on the amounts paid each month, as they are based on interest rates, set by the Bank of England.
Interest Only Buy to Let – How Much Can I Borrow?
How much you can borrow for an interest only buy to let property will depend on the value of the property and how much you can charge for rent. Usually, the more you are able to charge for rent on the property, the more you will be allowed to borrow as part of a mortgage loan deal. You may therefore need a letting agent to perform an assessment on the property to provide an estimate upon which the lender can base your mortgage’s overall value. Commonly, the rent charged on a property should be 125% of the mortgage payment amounts due. For example, if the mortgage repayments are £800 per month, you should add 25% on top of this, giving you £1,000 in total rent for the month.
Many lenders also require you be earning a minimum amount, usually around £25,000 per year before they will consider you for an interest only buy to let mortgage. Your credit rating plays a huge role when deciding how much you can borrow. Those borrowers with a good repayment history of credit cards, loans and other mortgages are more trusted by mortgage lenders and therefore likely to be able to borrow more, because they are a lower risk of default.
The Risks of an Interest Only Buy to Let Mortgage
Although interest only buy to let mortgages are increasingly popular, borrowers must be aware of the potential risks. If the property remains empty for any period of time, you will still have to pay the amount due each month to the lender, which could mean having to use your savings or personal income.
Also, with property prices in the UK prone to fluctuations, you need to invest in a property in a good area or you may not be able to charge high amounts of rent or sell your property for a higher value.
You should also consider that there are extra fees with buying a new property including capital gains tax, stamp duty, letting agent fees and legal fees. You may also need some extra finance if you wish to refurbish and renovate the property for tenants. If you do not budget correctly for these and you cannot repay your mortgage, it can negatively impact your credit score and may lead to the repossession of you property if you fall behind on repayment.
Compare Buy to Let Mortgage with Quiddi Compare
At Quiddi Compare, we work with leading providers of interest only buy to let mortgages throughout the UK and can provide plans for you to compare; finding the deal that works best for you. Our service is completely free of charge and is hassle and obligation free. All we need from you are a few quick details and we will be on the way to finding you your perfect interest only buy to let mortgage plan.