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I am thinking of investing in property, how are buy-to-let mortgages calculated?

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I am thinking of investing in property, how are buy-to-let mortgages calculated?

​Many people choose to invest in property, whether that's by renting out their current home rather than selling it or buying properties expressly for investment, rather than residential use.Buy-to-let mortgages are normally calculated on the rental income, however there are different types of buy-to-let mortgages and the criteria will depend upon which category your mortgage application falls into.

Amor Financial are based in the heart of Tunbridge Wells and offer mortgage services throughout Kent & Sussex 

The finances

There are some things that apply across all buy-to-let mortgages:

  • Deposit: The deposit requirements for buy-to-lets are higher than for residential mortgages, with a minimum requirement of 20%, but going up to 25%.
  • Your income: Unlike residential mortgages, buy-to-let mortgages are not necessarily dependent on your income. While some lenders will want evidence of a certain level of income (especially if you need to top slice – see below), with others there is no minimum income requirement.
  • Rental income: This is typically calculated at 80% occupancy, as your mortgage lender will need to know you can still afford the repayments if you have periods of voids.(If you live overseas or have non-UK income, this is normally calculated at only 60% occupancy.)
  • Top slicing: If the rental income doesn’t quite cover the mortgage repayments, you may be able to ‘top slice, i.e. use excess salary or other income to cover the shortfall. Top slicing is not uniform; some lenders weight in favour of rental income, especially for five-year fixed mortgages. 
The different types of buy-to-let mortgages
  • Consumer buy to let: This is the name given if you have been living in the property and are converting it into a buy to let, for example if you are moving in with a partner or are buying another property and are able to finance it without selling your current home. As the name suggests, these types of mortgages are not considered to be for professional landlords, so they are more tightly regulated to make sure you are adequately protected and don’t commit yourself to a financial situation you can’t really afford. This means a bit more red tape, so you may have to show more documents to prove your financial situation.
  • Investment buy to let: If you are buying a property that is in additional to your residence, you are regarded as a professional landlord. You are therefore deemed to have bit more of an idea what you are doing, and so may not have to jump through quite so many hoops.
  • Portfolio landlord: You will be considered to be a portfolio landlord if you have four or more buy-to-let properties. The lending criteria can be quite strict: mortgage companies will look across your whole portfolio and assess your aggregate borrowing. 
Making your mortgage easy

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