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How to purchase a Rental Property

Published on 26th September 2018 - Last update on 26th June 2019

Property in the UK is often highly sought after and offers a wide variety of benefits to investors, largely because of the ever-increasing value of the property market. However, the demand for housing gives you the opportunity to generate additional income through renting. But in order to do so, you must first overcome the challenge that is the asking price, which needs to be paid upfront and is often very high. Fortunately, this isn’t a burden you need to carry on your own. Like so many other property investors, choosing to apply for a Buy-to-Let (BTL) mortgage could offer you the keys to your next investment.

Why should I invest in property?

Highly sought after, but difficult to acquire, property in the UK is often considered a great area for investment, backed up by the consistent year-on-year rise of the market’s value. However, investing in property also means having a large amount of capital tied up in an asset that won’t allow you to earn a big return until you eventually sell - a decision you may not arrive at for many years. But to overcome this issue, more and more investors and commercial landlords are choosing to open their doors to tenants in order to generate a rental income in the meantime. However, many property finance products include clauses that prohibit you from renting, which is where Buy-to-Let mortgages can help.

Looking to invest in property? Are you also seeking to generate a rental income from tenants? Apply for a Buy-to-Let Mortgage or learn more about how you could benefit.

Can I rent the property to tenants whilst the agreement is in place?

Unlike other property finance products, Buy-to-Let mortgages are designed specifically for investors who intend to rent a section, or even an entire property, to tenants - and actively encourage you to do so. Plus, whereas Commercial Mortgages take into account your current income, Buy-to-Let Mortgage providers, instead, base their decision on how much rental income you stand to earn, among a variety of other factors too. So as a result of the increased flexibility in this area, Buy-to-Let mortgages are becoming increasingly popular with property investors.

How do Buy-to-Let Mortgages work?

Buy-to-Let Mortgages are long-term business finance solutions that offer terms lasting up to 20 years and are secured against the property you seek to purchase. So, although funding usually starts from £50,000, agreements are based on the concerned property’s asking price. This means that there’s no limit to the amount of capital you could borrow, other than what the lender is willing, or able, to lend. However, you are required to place a portion of your own capital forward which, for this type of mortgage, usually starts at 25% of the property’s asking price. But, in order to reduce the amount of capital you need to borrow and gain a favourable interest rate, you could offer up to 40%, providing you can afford to do so.

However, unlike Commercial Mortgages which use a Fixed Monthly Repayment scheme, Buy-to-Let Mortgages tend to be established as Interest-Only agreements. This means that throughout the course of the agreement you only repay the interest accumulated on the capital at the end of the month and not a portion of the capital borrowed, leading to smaller monthly repayments for you (compared to a fixed monthly repayment scheme). But, when the agreement matures, you need to resolve the Principle (money borrowed) in one single repayment. As such, you may want to place some of the money that you’re earning in rent into an interest-generating account. This could help you manage the repayment when the time comes, and is a topic you should discuss further with your accountant.

Thinking about purchasing a rental property?

Although property can make for a great investment, the costs that are often involved can make this a difficult goal to achieve. But rather than using your own savings, which can easily push you into financial difficulty, exploring how Property Finance could help may be the answer. However, if you’re also looking to generate a rental income as well, one product that can offer you the freedom to do so whilst the agreement is in place is a Buy-to-Let Mortgage. All you need to do now is source an appropriate agreement from a lender you can trust, which is where speaking with a qualified business finance professional can help.

At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are completely free to use and we’ll also guide you through the application process from start to finish. So if you’re looking to purchase property with the intention of generating a rental income, apply for a Buy-to-Let Mortgage today or find out more with Rangewell.

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David Harrison

David Harrison

Content writer
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