Property TV | Property Question Time – Ep 172 – Why you need a Buy-To-Let Mortgage
Stephen Galpin: Gentlemen, thank you very much for that. Paul, now I have your question. Hi, I want to buy a property to rent out as an investment. Why do I need a buy-to-let mortgage? Can’t I just get a normal one?
Paul: Okay, good question. The answer to the question really depends on what you’re planning to do. So, you mention about getting a normal mortgage and renting the rooms out. Now, you can do that, if you actually planning to live there. So, a normal mortgage, or a residential mortgage, meaning that that place is going to be your primary place of residence, you can definitely do that and you can rent the rooms out. You can, in fact, rent the rooms out up to, I believe it’s around 7,000 pounds per anum of income, which is tax free. So the government is actually encouraging people to do this to create more availability of property. So, that can be a good option, if you’re planning to live there.
But, sometimes, the best possible investment for you might not be where you’re wanting to live. And I wouldn’t say, to buy somewhere just because you want to live there, because that’s, going to be using quite emotional criteria. Where as it, when it comes to investing, you should be very commercially-minded and unemotional. It should be about making money as opposed to what you want or like. So, it’s going to come down to what you want to do. You know, are you going to live there? If so, then what you’ve mentioned, you could do that.
But, you also mentioned about investing in property, or buying property as an investment. Now, if that’s what you’re going to do and you’re not going to live there, then you definitely will need a buy-to-let mortgage. That these mortgages specifically tailored for the purpose of buying a property to lease it out. It’s also easier to get a buy-to-let mortgage than it is to get a residential mortgage. The reason for that is the serviceability for a buy-to-let mortgage is linked to the rent from the property as opposed to your personal income.
You didn’t mention about your personal income, but most lenders will only lend you up to four to five times of your personal income. So, for example, if your personal income is 50,000 pounds, you will only be able to borrow about 200 to 250,000 pounds. Whereas a buy-to-let mortgage, generally you would be able to borrow quite a bit more because of the rental income. So, that’s another thing to consider, but to simplify things in answering your question, it will come down to whether you’re going to live there or whether you’re not going to live there as to what type of mortgage you’re going to need.
Stephen Galpin: Paul, thank you for that.