What Deposit Do I Need For a Buy-to-Let Mortgage?
Whether you’ve got 10 properties to your name or just have the one rental property, you will need a buy-to-let mortgage if you don’t own the property outright. Buy-to-let mortgages are a lot like residential mortgages, with a few important distinctions. The first difference is that you need a bigger deposit, and the second is that if you don’t already have a tenant, you will need to prove that your property is rentable before you will be able to secure a loan. Keep reading to learn more about the first key difference that a buy-to-let mortgage presents: the deposit.
A deposit of 25-75%
Generally speaking, you need at least 25% deposit on your buy-to-let property mortgage. Any less, and you won’t have many lenders to choose from and you’ll be exposed to considerably higher fees. The reason for this 25% deposit, compared to the 5-10% for a normal mortgage, is because lenders see buy-to-let properties as a greater risk than standard home loans. This is because them getting their money back doesn’t just depend on you, but another, more unreliable source: tenants paying their rent.
Bigger deposits are better for buy-to-let mortgages
For a buy-to-let property, 15% is a bare minimum. While it probably won’t prohibit you from getting the loan, it will massively restrict your choice of lender and rate. If you’re buying to let for the first time, it is pretty unlikely a lender would accept 15%. If possible, you should really try and increase your deposit to 25%. This is where the magic starts to happen! At 25% your choices of lender and rates should improve dramatically and you can move forward with your buy-to-rent mortgage at the best rate for you.
It is important to remember the distinctions between a normal mortgage and a buy-to-let mortgage. Not only do you need a bigger deposit, but you also require tenants ready to go. If this isn’t the case, you will need to prove that your property is rentable before you will be able to secure your loan! All in all, if you can tackle the issue of the deposit and get it up to that sweet spot of 25%, you’re pretty much good to go.