Due to the coronavirus pandemic, most 90% LTV buy to let mortgages are currently unavailable, with 85% LTV being the closest mortgage product on the market. But what if you only have a small deposit? Is it possible to find a buy to let mortgage with a 10% deposit? It may be worth waiting for the market to stabilise.

With redundancies on the rise and the economy unlikely to return to pre-pandemic levels anytime soon, you may find it difficult to launch a letting venture at this time. When searching for buy to let mortgages with 90% LTV you'll find the usual suspects available, such as fixed rate, discounted variable rate and tracker mortgages. Which you choose will depend on a number of factors.

If you are a first time landlord and stretching yourself to take out a buy to let on top of your residential mortgage, the security of a buy to let fixed rate mortgage may be a good option as you know your payments will not rise during the term. However, interest rates are historically low at the moment at just 0.1%. Buy to let variable rate mortgages, which are usually fixed at a set percentage below the lender's standard variable rate (SVR) are correspondingly low, making them an attractive option. Buy to let tracker mortgages, which typically track a fixed amount above the Bank of England base rate are also extremely low. What's more, if you believe interest rates will drop even further, they may get cheaper still.

However, with both discounted variable and tracker mortgages, should the base rate rise, so too will your payments, as most lender standard variable rates loosely track it too.  This level of uncertainty can prove difficult to budget for. Indeed, if rates continue to rise, you might risk not being able to make your mortgage payments at all. If you do choose any type of variable rate mortgage, it could be well worth looking for capped deals. With this type of mortgage product, a cap' is placed on the mortgage rate. Should the base rate rise above this cap, your mortgage rate will be prevented from following suit, a useful safeguard in today's low interest climate. On the other hand, some lenders employ a collar' to their rates, meaning that should the base rate drop below the collar, your mortgage rate will not follow it.

This, rather disappointingly, is to prevent mortgage rates going into negative interest, which would mean your lender would have to pay you interest! When you are looking for a buy to let mortgage with a 10% deposit, not only will you face hefty fees and charges, but you may also be subject to a higher lending charge. For this reason, it is vital to work out how much your mortgage will cost for the entire discounted term, including the fees and charges. You can also see the actual cost over the entire term of the mortgage as the Annual Percentage Rate of Charge (APRC).

Comparison websites are a good place to start your search as not only do they show the duration and maximum LTV for different lender's deals, they list all the different fees payable on each mortgage product. By listing similar products side by side, comparison sites save you trawling the internet to check numerous lenders' websites.

About the Author: Glen Callow

Prime Accountants News Centre

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