Buy to Let Mortgage Rates

Buy to let mortgages are mortgages on a home that you plan to let out rather than living in it yourself.  When you apply for a buy to let mortgage, you will need to qualify for the mortgage based on income requirements just as with any mortgage.  However, in the UK, you can usually claim about 80% of the expected rent from your tenants as income.

Like the rates on other mortgage products, buy to let mortgage rates can vary quite a bit.  As I write this, I am looking at a website that shows rates ranging from 3.49% to 5.99% for buy to let mortgages.  The mortgage rate alone does not give us the full picture when considering how much financing will cost, and rates may be higher or lower as a result of other terms offered on the mortgage.

Lenders generally offer lower rates when other terms or qualification requirements are in their favor.  Here are some other factors that can affect the interest rate on a buy to let mortgage.

Since rates are low and mortgage lenders know that they will probably be able to raise rates on a variable interest mortgage in the future, the rates on variable mortgages are lower than on fixed rate mortgages.  This trend usually reverses when interest rates are high because then they are more likely to drop, which would be in the borrower's favor.  Variable rate mortgages are usually a bad deal for the borrower when interest rates are low.  It is better to pay a slightly higher mortgage rate and lock it in for as long you can so that you are protected when rates rise.

There is usually an introductory period on these buy to let mortgages, during which time the introductory interest rate applies. At the end of that time, the interest rate will change to the lender's standard rate. You should try to find out how the standard rate is calculated so that you will understand how your mortgage payment is likely to be affected once the introductory period is over.

The buy to let interest rate will be affected by the loan to value ratio (LTV). This is the percentage of the purchase price that you are borrowing. For example, if you buy a house for its appraised value and put 20% down, the LTV will be 80%. You will usually get a better interest rate with a higher LTV.

Many times you will find that a loan with higher arrangement fees payable when you take out the mortgage will have a lower interest rate.  However, this is not always the case.  You should evaluate all of the costs involved in taking out a mortgage before deciding which one is best.

The redemption period is the length of time you must wait before you can pay off a mortgage early.  If your mortgage has a redemption period, you will still be able to get out if you need to sell the property but there will be additional fees.  Loans with a redemption period may or may not have lower interest rates than those without them.

No matter what terms you are looking for, it is always best to shop around when looking for a mortgage.  There are a wide variety of options available to choose from.  You will have to weigh the benefits of the terms you want against the effect they will have on your interest rate.