A buy-to-let mortgage is a financial product aimed at investors who buy properties to generate rental income rather than for personal use. These mortgages are similar to standard home loans but come with key differences. Lenders typically require a larger down payment, often around 20-40%, and the interest rates can be higher due to the increased risk associated with rental properties.
The approval for a buy-to-let mortgage is based not only on the borrower’s creditworthiness but also on the projected rental income from the property. Lenders usually expect the rental income to cover at least 125-145% of the mortgage repayments. Investors use buy-to-let mortgages to build property portfolios, generate passive income, and benefit from potential capital appreciation. However, these investments also come with risks, such as void periods (when the property is vacant) and maintenance costs.