Buy-To-Let Mortgages With a 10% Deposit: Is it Possible?
Buy to let mortgage with 10 deposit-
Are you interested in purchasing a buy-to-let property but need help saving a large deposit? If so, you may wonder if securing a buy-to-let mortgage with a lower deposit is possible. The good news is that it is possible to find buy-to-let mortgages with a 10% deposit, but knowing the associated risks and costs is important.
The Risks of a 10% Deposit-
Regarding buy-to-let mortgages, lenders often require a higher deposit than residential mortgages, as they perceive them as a higher risk investment. Typically, lenders require a deposit of at least 25% of the property’s value, meaning that for a property worth £200,000, you would need a deposit of £50,000.
However, some lenders do offer buy-to-let mortgages with lower deposits. This may range from 15-20% of the property’s value, meaning that for a £200,000 property, you would need a deposit of £30,000-£40,000. In some cases, you may even be able to secure a buy-to-let mortgage with a deposit as low as 10% of the property’s value, meaning that for a £200,000 property, you would need a deposit of £20,000.
While a 10% deposit may seem attractive, it’s important to consider the risks involved. Firstly, lenders offering buy-to-let mortgages with lower deposits usually charge higher interest rates than those with higher deposits. They view it as a higher risk investment and want to ensure they are compensated for the risk.
Secondly, some lenders may also require you to have a higher rental income than the mortgage payments. This is known as the rental coverage ratio, which ensures you can still make the mortgage payments even if the property is vacant or the rental income decreases. Typically, lenders require a rental coverage ratio of around 125%, meaning the rental income needs to be at least 125% of the mortgage payments. However, some lenders may require a higher rental coverage ratio if you have a low deposit.
The Costs of a 10% Deposit-
While a 10% deposit may seem more affordable, it’s important to consider the costs involved. As mentioned, lenders who offer buy-to-let mortgages with lower deposits usually charge higher interest rates than those with higher deposits. This means that you may pay more in interest throughout the mortgage, which can add up to a significant amount.
In addition to higher interest rates, lenders may charge higher fees for buy-to-let mortgages with a 10% deposit. This can include arrangement fees, valuation fees, and legal fees. These fees can add up quickly, so factoring them into your budget when considering a 10% deposit is important.
Alternative Options-
If you need help saving up for a 10% deposit, there are alternative options to consider. One option is to save up for a larger deposit, which can result in lower interest rates and fees. Another option is to consider purchasing a property in a more affordable area, which may require a smaller deposit.
Also, consider partnering with someone else to purchase the property, which helps spread the costs and reduce the deposit required. Alternatively, consider investing in a property through a crowdfunding platform, offering a lower entry barrier and lower risks than purchasing a property outright.
Conclusion-
While securing a buy-to-let mortgage with a 10% deposit is possible, it’s important to consider the risks and costs involved carefully. Higher interest
