Buying property to rent out can be a smart move that delivers long-term benefits. However, the biggest hurdle is often the deposit if you’re entering the market for the first time. The good news is that you don’t need a huge cash sum to get things moving.
Many people have been able to purchase their first property with just a modest deposit. Finding out more how the system works and what lenders are actually looking for can be extremely helpful when you want to enter the BTL market.
In this blog, we’ll break the whole process down step-by-step, looking at how it works, what lenders want and where to find the best mortgage deals in the UK even with a smaller deposit. If funds are limited, you may simply need to strengthen your plan to get the right outcome.
What Exactly Is a Buy-to-Let Mortgage?
Before we go any further, let’s look at what a buy-to-let mortgage actually is.
BTL mortgages are designed for people who want to purchase property specifically to rent it out. They differ from a standard residential mortgage in a few important ways. One of the biggest differences is that the lenders pay more attention to your potential rental income than your personal earnings (though they also take these into account).
In most scenarios, you’ll need a bigger deposit for a BTL mortgage and face slightly higher interest rates compared to a residential loan, but don’t let this put you off. There are plenty of lenders offering competitive buy to let mortgage rates UK wide, and some will even accept a lower deposit if the deal works for them as well as you.
How Low Can You Go with a Deposit?
When it comes to buy-to-let, “low deposit” doesn’t mean the kind of 5% figure a first-time residential buyer might be charged. With BTL, a low deposit usually means offering up 15% to 20%. Some lenders only accept 25% or more, but if your rental yield looks promising, some may be happy to reduce your deposit size.
Before you apply, it’s wise to use a buy to let mortgage calculator UK to see how much the mortgage will cost you. These tools give a quick idea of how much you might be able to borrow and the kind of repayments you’ll face. The deposit size will affect your monthly costs, so it’s good to get clarity from the outset.
Boosting Your Chances of Approval with a Small Deposit
If you’ve only got a small deposit to put down, you’ll need to strengthen other areas of your application. Start with your credit score – if it’s in good shape, this can be very encouraging for lenders. Make sure your income can comfortably cover the repayments. Some lenders will expect you to earn at least £20,000 a year outside of rental income. A strong rental yield also goes a long way towards getting your application approved.
You could also consider buying with a partner or using a guarantor if these options are available. Remember that, even with a smaller deposit, there are still decent best buy to let mortgage deals UK borrowers can take advantage of. You just need to look in the right places.
Why a Mortgage Broker Can Make Life Easier
If you’re not sure where to begin, or your deposit situation is a tad complicated, speaking to a broker can be a game-changer. The best mortgage brokers UK don’t just find you a rate; they match you with the lenders most likely to approve your application.
Brokers also have access to deals that aren’t available or advertised to the general public. Plus, they know which lenders are most likely to accept smaller deposits. An experienced and reputable broker will save you time, money and hassle – what’s not to like!
What About Interest Rates?
When you don’t have a huge deposit, interest rates can really make or break the deal. Generally, the smaller your deposit is, the higher your interest rates will be. However, there is no need to panic. There are many great options available even when you only have a modest deposit available.
Explore fixed and variable rate options, work out your affordability and carry out comparisons by using a trusted buy to let mortgage calculator UK. This helps you to see the long-term impact of slightly higher interest rates and decide what works best for you and your finances.
The current buy to let mortgage rates UK market offers a wide range of options to suit a wealth of circumstances. Don’t simply accept the first option you encounter: shop around to get the best possible deal for you.
Is It Better to Wait and Save More?
Whether waiting longer is the right option for you depends on your goals. If you’re aiming for the lowest possible rate, then building a higher deposit could get you a better deal. But if the right property comes along now and you have a smaller deposit available, there’s no harm in jumping in sooner.
A broker can help you weigh up the pros and cons of acting now versus holding on for a little longer. The best mortgage brokers UK will take a close look at your financial position. They’ll give you an honest opinion on whether it’s better to act now or postpone your purchase for six months to add to your proposed deposit.
Final Thoughts
Getting a buy-to-let mortgage with a low deposit is far from impossible – it just requires the right approach. Know your figures, stay realistic about lender expectations and don’t hesitate to get help from a broker.
Take the time to thoroughly research the best buy-to-let mortgage deals UK currently available from lenders. Use a reliable buy-to-let mortgage calculator to compare rates and assess affordability. With careful preparation and a little patience, you’ll be well on your way to building a successful rental portfolio – even without a large deposit.
Thinking of starting your rental journey with a low deposit?
Talk to our team today to explore your buy-to-let mortgage options and find a deal that suits your budget. Contact us now for expert advice BTL advice.