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Second charge mortgages are secured loans taken out against the equity available in your current home.
This guide explains when it might be the right time to remortgage.
Buy-to-let mortgages are very similar to residential mortgages. The difference, of course, is that you won't be living in the property. It is a mortgage that is expressly designed for properties that will be rented out to tenants.
Before offering you a buy-to-let mortgage the lender will need to see that you will be making a profit every month. In general, the rent will need to be at least 125% of the mortgage payment. But you should check carefully before making an application that you will be eligible, as a significant number of lenders have more stringent affordability requirements, especially if you are a higher rate taxpayer. You should also expect to pay higher arrangement fees with a BTL as well as a different way of assessing whether you can have the mortgage.
Don't forget that while your lender might be happy that you can afford the repayments, you need to be happy too. There are all sorts of other costs to consider before making such a big financial commitment on a buy to let property: insurance, agent's fees, legal costs, maintenance costs, etc.
There are several reasons why you may decide to take on a buy-to-let mortgage. It could be that you see it as a source of extra income or something that will make your retirement more financially secure. Perhaps it's that you're thinking of moving out of your home, for whatever reason, and want to let it out to tenants.
In simple terms, a three-year fixed rate mortgage can provide the security of fixed regular payments while still giving you the ability to remortgage after three years.
A fixed rate mortgage is ideal if you want your monthly repayments to stay the same over a set period – in this case, three years – but they aren't necessarily as cheap as some of the tracker rates available to landlords. You will, however, have the peace of mind of knowing that if rates rise, your repayments will stay the same.
As with any mortgage application, there will be rigorous checks made before a lender is satisfied that you can meet the monthly repayments. Their decision will be based on:
A three-year fixed buy-to-let mortgage often comes with higher interest rates than its 2-year equivalent. Always look at the total cost of your mortgage including the application, arrangement and other associated fees. It is also important to consider the early repayment charges you might face if you need to move your mortgage or choose to pay this off early.
It's important with a short-term fixed rate mortgage that you consider the costs of remortgaging your buy-to-let property regularly.
When you reach the end of your three-year fixed rate period, your lender will usually transfer your mortgage to its buy-to-let standard variable rate, or possibly a tracker-based variable rate. This is likely to be higher than your fixed rate. If you choose not to remortgage, it's important that you have enough wiggle room in your budget to absorb the higher mortgage costs. Remortgaging will involve paying new mortgage fees and possibly legal fees if you move to mortgage to a different lender.
You could pay less tax on your buy-to-let property if you set up a limited company to manage it. Our preferred expert mortgage advisers can help to guide you through this process.