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Unlike a residential mortgage, where the amount you can borrow is based on your salary and your outgoings, a buy to let mortgage is assessed on the rental income that the property is likely to generate. Lenders will typically need the rental income to be at least 125% of the monthly mortgage payments (on an interest only basis) which means that means that if your mortgage will cost £800 a month, the rent will need to be at least £1,000 a month.
Most lenders will also require you to be earning an income yourself. Try our buy to let calculator to see how much you could borrow.
As with any type of mortgage, the more you can put down as a deposit, the better the mortgage deal you could get. A lower mortgage rate means lower monthly payments and a greater margin between your rental income and your mortgage costs.
As a rule, you’ll need a deposit of around 25% or more of the property’s value, although some lenders will require as little as 15%, provided the rental income is sufficient.
If you are a private landlord and renting a property that will be your tenants’ home, then you’re likely to need an Assured Shorthold Tenancy (AST).
When applying for a buy to let mortgage, the mortgage lender will insist that you have an AST and may ask to see a copy. There’s more information about tenancy agreements on the GOV.UK website here – www.gov.uk/tenancy-agreements-a-guide-for-landlords.
The simple answer is yes, but you may be limited when it comes to getting a mortgage. The first question to ask is, are you a first time landlord or a first time buyer?
This is key as a large percentage of lenders need you to own your own residential property (possibly for at least six months) before they will offer you a buy to let mortgage. Some lenders just need you to own a property, so you could have another buy to let property but live in rented accommodation.
If however you are a complete first time buyer (or don’t currently own a property) then your mortgage options will be limited. An adviser will know the best lenders to speak to if you fall into any of these categories.