Securing approval for a buy to let mortgage can be challenging due to the array of available options. Additionally, you must select the appropriate mortgage type for your buy to let property, considering options like repayment mortgages instead of interest-only deals.
Although interest-only mortgages are prevalent in the buy to let sector, repayment mortgages offer their own benefits. Your choice typically hinges on your investment objectives. This guide will assist you in evaluating your options before reaching a decision.
What is a buy to let repayment mortgage?
Securing approval for a buy to let mortgage can be challenging due to the array of available options. Additionally, you must select the appropriate mortgage type for your buy to let property, considering options like repayment mortgages instead of interest-only deals.
Although interest-only mortgages are prevalent in the buy to let sector, repayment mortgages offer their own benefits. Your choice typically hinges on your investment objectives. This guide will assist you in evaluating your options before reaching a decision.
Why would landlords want a repayment mortgage?
Buy to let repayment mortgages are favoured by those aiming to augment their retirement income.
If you fully own a buy to let property, the rental income becomes entirely yours. Additionally, selling the property near the mortgage term’s conclusion often results in a capital gain.
There’s also the possibility to transition from an interest-only to a repayment mortgage. This transition could offer a lasting investment that you could pass down to your children.
Advantages of a buy to let repayment mortgage
- Property ownership in full upon mortgage term completion
- Gradual reduction in mortgage interest
- Lower interest payments in comparison to interest-only mortgages
- No requirement for a repayment vehicle or exit strategy
- Suitable for generating income in later years
- Property inheritance for children or next of kin is feasible
Disadvantages of a buy to let repayment mortgage
- Stricter affordability assessments are common
- Monthly repayments may surpass those of interest-only mortgages
- Limited availability of buy to let repayment mortgages
- Challenges in obtaining substantial mortgages due to affordability
Repayment mortgages, involving both capital and interest payments, often lead to higher monthly outlays. Consequently, affordability assessments can pose challenges, particularly for securing larger mortgages.
Should I choose an interest-only or a buy to let repayment mortgage?
Interest-only mortgages dominate the buy to let landscape, yet your choice between repayment or interest-only hinges on your investment objectives.
An interest-only mortgage can offer improved monthly cash flow, especially in the early mortgage stages, as repayment mortgages often leave minimal monthly cash surplus.
Repayment mortgages typically translate into lower overall costs, given the gradual reduction in both capital and interest as you clear the balance monthly.
With an interest-only mortgage, you must plan for a repayment vehicle or exit strategy. This is vital because, at the mortgage term’s end, you’ll still owe the full capital amount to the lender. It’s a notable drawback associated with interest-only mortgages.
Does having bad credit affect a buy to let repayment mortgage?
Credit problems can impact your mortgage prospects. However, it’s still feasible to secure a buy to let repayment mortgage even with the following credit challenges:
- County Court Judgements (CCJs)
- Late payments and arrears
- Bankruptcy
- Repossession
- Debt Management Plan (DMP)
- Defaults
- Individual Voluntary Arrangement (IVA)
The mortgage options accessible to you will be influenced by the nature of your credit issues and their recency.
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