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5 Key Considerations Before You take a Buy-to-Let Loan

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If you are considering taking out a buy-to-let mortgage, there are a few things that you need to consider before applying. First, this guide will discuss some of the critical considerations that should be considered when applying for a buy-to-let mortgage, either as an individual or through a corporate entity such as a limited company.

What type of property are you looking for?

You need to know what type of property you are looking for before you get a buy-to-let loan. It is essential to have a clear idea to save time and money when applying for a mortgage. The most common types of properties are:

  • Houses
  • Apartments
  • Bungalows
  • Duplexes/triplexes

What are the rents in the local area?

When you consider the type of property you are looking to buy and its location, it is important to consider the local market rents. This will help you determine whether your investment has good potential for capital growth.

What is your financial position?

Your financial position is critical in deciding whether you can afford to take on a buy-to-let mortgage. The lender will want to know the following:

  • Your income and employment status
  • Your credit rating, including any defaults or CCJs (County Court Judgments) that are on your record
  • Your savings and investments
  • Outgoings for essential household items such as rent, utilities, food etc.

Which areas do you want to invest in?

Your research should include areas that fit the following:

  • Local area: Look for places with a strong local economy, good schools and low crime.
  • Local property market: Ensure that you are getting the best deal on your mortgage by looking at past and present statistics of house prices in an area.
  • Local rental market: Consider what type of tenants might rent your property, how much they will pay and how long they will stay before moving on.

How much will the mortgage cost?

The cost of your mortgage is not just the interest rate.

Mortgage fees can make a big difference to your monthly outgoings, so it’s essential to include them in your calculations when deciding whether or not you can afford a property.

Here are some of the costs you need to be aware of:

  • The arrangement fee: This covers work done by the lender, such as arranging your mortgage and checking that you meet lending criteria. It is usually paid at the start of the process and will typically be between £300-£500 but may be higher for large loans.
  • Early Repayment Charges (ERCs): These apply if you pay off some or all of your loan early, usually after five years or more (sometimes referred to as “capital redemption penalties”).

Taking out a buy-to-let mortgage is difficult, and many considerations exist before committing. First, it’s essential to understand that the most important thing is to ensure your finances are in order and that you can afford any repayments if things go wrong with your investment. You should also be aware that different types of mortgages are available, so it’s worth looking into what will work best for you before signing up!

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