Whether you’re brand new to property investing or already a property mogul, chances are you'll need to apply for a mortgage at some stage in your investment journey.

So, you’ll need to know which mortgage is right for you and your property deal.

It’s best to speak with a mortgage broker or mortgage advisor to give you professional advice and find you the best mortgage deals that are on the market.

But, before you do that, let us explain a few of the different options available to you.

What Is A Mortgage?

A mortgage is essentially a loan that enables you to buy a property. You borrow money from a lender, typically a bank or a mortgage company, to purchase either a property you are going to live in or be a landlord of, and you pay back the loan over time with interest.

Different Types Of Mortgages

Buy-to-Let Mortgages:

A buy-to-let mortgage is specifically designed for individuals who want to purchase residential property with the intention of renting it out to tenants rather than living in it themselves.

Lenders typically have specific eligibility criteria for buy-to-let mortgages. These criteria may include a minimum age, minimum income, and requirements regarding the number of properties you can own as a landlord.

The required deposit for a buy-to-let mortgage is usually higher than that for a standard residential mortgage. Typically, you'll need to provide a deposit of at least 20-25% of the property's purchase price.

HMO Mortgages:

This type of mortgage is designed for properties that are classified as HMOs. An HMO is a property rented out to multiple tenants who form more than one household and share common facilities like a kitchen or bathroom.

To be considered an HMO, a property must meet specific criteria set out by the UK government. If a property meets these criteria, it must be licensed as an HMO, and this classification affects the type of mortgage required.

Not all mainstream lenders provide HMO mortgages.

Serviced Accommodation:

Thinking of using your property as serviced accommodation and advertising it on platforms such as Airbnb, VRBO, and Booking.com?

Mortgage lenders need to know if you're using a property as serviced accommodation to accurately assess risk, set appropriate loan terms, ensure regulatory compliance, and make informed lending decisions based on the property's specific use and potential income.

It's important to be transparent with your lender about your intentions for the property to avoid any potential issues during the mortgage application process.

Semi-Commercial Mortgages:

This is a type of mortgage product designed for properties that have both residential and commercial elements.

These properties, also known as mixed-use properties, typically combine a residential living space with a commercial space, such as a shop, office, or restaurant, within the same building.

Lenders offering semi-commercial mortgages will have specific eligibility criteria that borrowers must meet. These criteria may consider factors such as the nature of the commercial use, the financial stability of the borrower, and the loan-to-value ratio (LTV) of the property.

Multi-Unit Freehold Block Mortgages:

This is a type of mortgage product designed for property investors who wish to purchase or refinance multiple units within a single building or block of flats.

These units are typically held under a single freehold title, allowing investors to own and manage multiple rental units within the same property.

One distinguishing feature of MUFB properties is that they are held under a single freehold title, as opposed to each unit having its own separate leasehold title. This means that the property investor has control over the entire building or block.

Lenders will assess the rental income potential of the entire block of units when determining the borrower's ability to service the mortgage. This includes evaluating the current and potential rental income from each unit.

Understanding Mortgage Rates

When it comes to understanding mortgage rates one of the first things you’ll want to do is use an online mortgage calculator. Enter in your details to give you a better idea of your borrowing limit and monthly repayments before speaking with a mortgage advisor or mortgage broker.

Many property investors are currently asking “Will mortgage rates go down?” and this is something investors need to keep a close eye on. It’s important to stay on top of the news and current events. Setting up Google Alerts for mortgage rates will help you be the first to know any major announcements or changes.

Conclusion

Understanding different mortgage options is essential for property investors to make informed decisions and maximize investment potential. By knowing which mortgage suits their investment strategy (e.g., buy-to-let, HMO, etc.), investors can secure financing tailored to their needs, optimise rental income, and navigate market fluctuations effectively, ensuring successful property investment ventures.