BTL MORTGAGE - Mortgages designed for landlords (buy-to-let mortgages) are not the same as mortgages designed for home-owners (residential mortgages).
If you are taking out a buy-to-let mortgage, there are some important differences that you should know:
Because residential mortgages are designed for home-owners, they come with regulatory protections designed to minimise the risks of people losing their home. This means that everything, from how mortgages are sold right through to the worst case scenario of repossession, are strictly controlled by a set of rules which all mortgage lenders must follow.
Buy-to-let mortgages are considered to be a business transaction. Because the property will not be the borrower's home, buy-to-let mortgages are not regulated by the Financial Conduct Authority and the rules that apply to residential mortgages do not apply to buy-to-let lending.
Unlike most residential mortgages, buy-to-let mortgages are commonly offered on an interest-only basis. This means that your monthly payments will only cover the interest on your mortgage. Your capital debt – the money you've borrowed – will not go down unless you choose to make extra payments or take out a repayment mortgage. You will need to pay the capital debt off in full at the end of your term. You could do this by selling the property, or you could keep the property and take out another mortgage.
A buy-to-let mortgage normally requires a larger deposit than a residential mortgage, typically a 25% deposit is required but can be up to 40%. You may face larger upfront fees and pay a higher rate of interest. You will have to pay more stamp duty for a second property that is not your main home.
FINAL THOUGHT - Most buy-to-let investors choose to set themselves up as limited companies for taxation purposes.
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