Are buy-to-let mortgages cheaper than residential mortgages?

Weighing up whether a residential or buy-to-let property is the best place to invest your money?

Below, we take a look at the difference between a residential and buy-to-let mortgage, while also answering the most common buy-to-let mortgage questions.

Thanks to an impressive 200 years of combined experience in the industry, our Bolton team knows how to sell residential property and source lucrative property investments.

What is the difference between a residential and buy-to-let mortgage?

Before we discover whether a buy-to-let mortgage is cheaper than a residential mortgage, let’s clarify the difference between the two.

Put simply, the difference between a residential and a buy-to-let mortgage is that a residential mortgage is the ‘standard’ mortgage that is offered to properties that are to be lived in by the homeowner (also known as residential properties).

A buy-to-let mortgage, on the other hand, is specifically designed for properties that are purchased by landlords with the intent of letting them to tenants (also known as buy-to-let properties). Not to mention, compared to residential mortgages, buy-to-let mortgages have different terms and are also often subject to higher fees and rates. Similarly, investors are typically required to put down a higher deposit.

Buy-to-let mortgages differ in a number of ways to residential mortgages – most notably, the way in which lenders will assess your application. Unlike a residential mortgage where lenders determine how much you can borrow by looking solely at your income and outgoings, buy-to-let mortgage lenders also take the potential rental income of the property into consideration.

After submitting your mortgage application for a buy-to-let property, mortgage lenders assess a wide range of factors, but they will primarily focus on how much rental income the property is likely to generate.

They will often look for a rental income that is equivalent to at least 125 per cent of your mortgage payments (occasionally, that figure is greater) to ensure the mortgage repayments are feasible.

Can you live in a buy-to-let?

No, you cannot live in a property that you purchase as a buy-to-let using a buy-to-let mortgage as these mortgage deals are specifically designed for landlords and have different terms to that of a standard mortgage.

In order to live in your buy-to-let without breaching the terms of your mortgage, you therefore would need to refinance and apply for a standard mortgage instead.

However, there are some exceptions.

For example, if you paid for the buy-to-let property without help from a mortgage, then you would be legal for you to live in the property for as long as you want. As you already own the property, you are not limited by the terms of a buy-to-let property mortgage.

Is a buy-to-let mortgage cheaper?

Put simply, no – buy-to-let mortgages are not cheaper than residential mortgages.

In fact, buy-to-let mortgages are often slightly more expensive than residential mortgages. This is because buy-to-let mortgages tend to have higher interest rates and higher product as mortgage lenders view these types of properties as higher risk.

Properties that are occupied by tenants are often seen as greater risk in the eyes of lenders than the owner-occupier properties. In part, this is because renters are more vulnerable to the effects of economic shock when compared to homeowners and are more likely to spend a significant proportion of their income on housing.

When considering buy-to-let mortgage costs, it’s also important to take into consideration the deposit amount.

Unlike residential mortgages that can only require a five per cent deposit, the majority of mortgage lenders will require a considerable 25 per cent deposit if you wish to acquire a buy-to-let mortgage.

By comparing the mortgage costs of a buy-to-let to those of a standard residential property, we can help you to make an informed decision about the best way to invest in property.

Is a buy-to-let mortgage worth it?

As buy-to-let mortgages are typically more expensive than residential mortgages because they come with higher fees and rates, the question becomes whether they are still worth it. Luckily, we can help here, too.

The biggest benefit of investing in a buy-to-let property is, providing there are no rental void periods, the regular income stream.

While rental yields will naturally vary depending upon the spec and location of your buy-to-let property, investors can typically expect a rental yield of anywhere between six and eight per cent.

A buy-to-let property is also viewed by many investors as a tangible asset that can increase in value over time.

While you can add value to a residential property, buy-to-let properties can be actively managed and controlled to meet the requirements of the landlord or property investor.

From the location of the property to the target tenant, the landlord has complete control over every aspect.

Buy-to-let and residential properties at Mistoria Group

To discuss your next buy-to-let property investment or to seek help with your search for a new family home, don’t hesitate to get in touch with Mistoria Estate Agent’s Bolton branch.

Our team of highly-qualified property professionals are on hand to provide expert advice and guidance with both property investments and residential sales.

Alternatively, you can also submit your enquiry to our team using our handy online contact form or by coming to see us in person on Market Street in Little Lever – we hope to see you soon!

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