The buy-to-let mortgage market is a lot more complex than the residential market. There are many different types of mortgages, each with its own features and benefits.
This guide aims to help you understand how these different types work and decide which would be best for your situation.
Fixed Rate Buy to Let Mortgage
The most common type of mortgage for landlords is the fixed-rate buy-to-let mortgage. This type of mortgage means that you will pay the same amount every month, and your lender cannot change the interest rate on your loan unless they give you at least two months’ notice.
Ltd company holiday let mortgage rate also depends on various factors. As per experts like Commercial Trust, “Holiday let deposits currently need to be at least 20% of the property value.”
Discounted Rate Buy to Let Mortgage
A discounted rate buy-to-let mortgage is a mortgage that you can get at a lower rate than the standard variable rate (SVR). The discount can be up to 1%.
To qualify for one of these mortgages, you’ll need to have a good credit record and meet certain criteria, such as having rented out your home for at least six months.
Capped Rate Buy to Let Mortgage
With this mortgage, your interest rate is fixed for a set period of time. This can range from one to five years, but it’s often between two and three years.
After the initial fixed period ends, your mortgage rate will remain unchanged until it is reset—usually at least once more before you completely pay off the loan.
If you want to make changes to the terms of your mortgage before that point, you’ll have to contact the bank or building society that issued the loan in order to negotiate them out of their hands directly (because they’re not allowed under FSA rules).
Variable Rate Buy to Let Mortgage
The variable rate buy-to-let mortgage is perfect if you are looking to get a property with a low deposit and want to benefit from the flexibility of moving onto another product at any time without paying early repayment penalties.
This type of mortgage works in much the same way as other variable-rate loans, with interest rates changing depending on what happens with the base rate. Because it is so flexible, this type of loan can work out better value than an SVR mortgage when interest rates are high.
Tracker Rate Buy to Let Mortgage
Tracker mortgages are fixed-rate mortgages that move in line with the Bank of England base rate. This means they tend to be a good option for anyone who wants a low-interest rate but is nervous about the future of their mortgage and what will happen if rates increase.
Standard Variable Rate (SVR) Buy to Let Mortgage
- The Standard Variable Rate (SVR) is the interest rate that your lender will charge you, and it’s linked to the Bank of England base rate.
- Your SVR may be set at a fixed percentage above or below the base rate. Most lenders usually use it to calculate buy-to-let mortgage rates, so if there are big changes in either direction with regard to bank rates, you can expect your SVR to reflect those changes too.
As you can see, there are many types of buy-to-let mortgages available. This article only listed a few of them, but it’s important to remember that your circumstances will differ from those of others. So do your research and find out which one is right for you!