Interest rates on buy-to-let mortgages are typically higher than those of traditional residential mortgages. The minimum deposit for a purchase-to-rent mortgage is usually 25% of the property's value, although it can range from 20 to 40%. According to the real estate agency Hamptons, in August the average purchase-to-rent mortgage rates of 75 percent between loan and value were 3.51 percent. A subtype of variable-rate mortgage is the follow-up mortgage, in which the rate you pay follows the path of the Bank of England's base rate.
The best purchase-to-rent mortgage rates are available on mortgages with a larger deposit, such as 35%, or with a loan-to-value ratio of less than 65%. Variable-rate mortgages may work in your favor if interest rates fall, but your payments will increase if rates start to rise. There are also some important differences between buy-to-let mortgages and traditional mortgages, such as higher minimum deposits and higher mortgage fees and rates. You'll need a purchase-to-rent mortgage if you intend to take out a loan to buy a property you want to rent; traditional residential mortgages are only for those who intend to live in the property they are buying.
As with a standard mortgage, the purchase-to-rent mortgage rate you pay will be determined based on a combination of factors, such as the size of the mortgage, the amount of the deposit you have, and the type of purchase-to-rent mortgage product you choose. You can contact your current lender to request a change from a residential mortgage to a purchase-to-rent mortgage. Many of the big banks and mortgage companies offer purchase-to-rent mortgages along with their traditional mortgages, although there are also many mortgage lenders that specialize in buy-to-let. A purchase-to-rent mortgage shares many features of a standard residential mortgage, since you'll have to pass the lender's affordability assessment, pass a credit rating and make a deposit.
This means that you only pay the interest on your mortgage loan and that your monthly payment is lower than that of an amortization mortgage. You can apply for a follow-up mortgage for a specified period of time (after which you will return to the lender's SVR) or for the entire duration of the mortgage. Also keep in mind that even the lowest purchase-to-rent mortgage rates are often higher than those of a standard mortgage. Discounted variable-rate mortgages offer a discount on the lender's SVR for a specified period of time.
