Practical guidance for investors weighing up how to fund buy-to-let and residential investment properties. Commercial Mortgages For Everyone today shared practical guidance for landlords and investors who want to understand how residential mortgage lending works when they buy a property to rent rather than live in. The guidance is aimed at people building a portfolio as well as those buying their first investment property.

Why Residential Mortgage Lending Looks Different For Property Investors

When looking at borrowing to buy a home to live in versus borrowing to invest in a property, there are some differences. When buying a home to live in most lenders will look closely at your income. Whereas when buying an investment property, most lenders will look at how much rent you expect to receive from the property. Often lenders will look at whether the rent is enough to comfortably cover your mortgage payments. They may do this by applying a higher interest rate.

Many lenders will expect investors to have a higher deposit. Some investors will opt for interest only payments to keep their monthly payments low. Others will want to pay off the capital. It will depend on how long you plan to keep the property and what you plan to do with it in the future.

What Lenders Review When Funding Residential Investment Properties

When funding residential investment properties, lenders look at more than the rent. They consider the property type, whether it is a single flat, a house, or a block with several units, and they check its condition and how it will be let. Some lenders have specific rules for properties with multiple tenants or for buildings that need work.

There are a number of factors to consider when looking at ownership. Some investors will borrow in their own names, while others may purchase through a limited company. Lenders may offer different products, lending criteria, and fees. The experience of the landlord in general can also be a factor in what they will lend. A landlord with an existing portfolio will be viewed differently than an investor buying their first property. If you are unsure how Tax affects you then you should consult a qualified Tax adviser.

How Investors Can Prepare For Residential Mortgage Lending Applications

There are ways to save yourself time. Think about putting together a realistic budget including mortgage payments, insurance costs, repair costs, letting payments and void periods. Gather together your identification documents, proof of income, information on any properties or loans you already have and a clear idea of what sort of rent you expect to get.

Consider timings. Completing a survey, legal checks and finding tenants can all influence how long it takes to complete your purchase. If you are looking to complete within a certain timeframe, then speak to your lender early to find out what documentation will be needed. Giving yourself some extra time to complete will help reduce the risk of getting rushed into a deal which might not fit with your borrowing and give you more flexibility to negotiate if anything unforeseen happens.

It's also a good idea to look around and find out more about different lenders as there can be huge differences in the criteria and rates offered. By speaking to your adviser early in the process you will make sure your borrowing strategy will fit with your property.
You can read more about residential mortgage lending and funding of investment properties on our website. As property is a long term commitment, your property could be at risk if you fail to keep up with repayments. Different lenders will have different terms, availability and costs.