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Cash or mortgage: which is best when buying-to-let?

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houses in a street
Cash or mortgage for a buy-to-let investment?

A question we’re often asked by potential buy-to-let investors in the Carlisle area letting market

In our experience of the residential letting market, most investors prefer to use a buy-to-let mortgage, even when they have the funds to buy a property outright. There are certain advantages, so it’s worth thinking carefully, and doing your homework. ( Apologies if the mention of homework still makes you shudder…)

If you invest all your capital into one property, and then experience a void period, or your tenant is unable to pay, then you will have no income coming into your bank account. Now that is never a good thing.

However, if you’d used your capital as a deposit on more than one property- taking out buy-to-let mortgages instead– then you should still be receiving a rental income from those properties to keep you ticking over until your first property is back in business.

It’s that ‘don’t put all your eggs in one basket’ cliche.

Still, you are responsible for ensuring that all the mortgage payments are met, so we’d certainly recommend starting with only one property and see what you make of the whole buy-to-let business.

In the early days, you need to work out whether you’re emotionally, physically and financially resilient enough. It’s just like starting out on any business enterprise: you’re going to need to have a contingency fund stored away in the bank to cushion any unforeseen financial hurdles.

You need to be confident that you can meet those mortgage repayments for a spell if your property is vacant or your tenant unable to pay.

There are also tax benefits in taking out a mortgage against buy-to-let properties as you can set the mortgage interest against the rental income- and a tax benefit is always a good thing for any business.

the keys to your property portfolio
Capital could be used to fund deposits on several properties

The array of mortgages out there is mind-boggling, so you’re going to need to do your research to find the right one for your specific needs.

Don’t be tempted to take out a residential mortgage– their interest rates may be lower and payments cheaper, but they are not for buy-to-let properties. They can also make your landlord insurance policy void- ouch! They’re illegal, too- so you don’t want to go there.

Interest-only or repayment?

Which type of mortgage is your decision , but we find that many seasoned property owners prefer the interest-only option.

These offer more flexibility– for example, if you’re bowling along well, and the tenants are paying regularly, you may wish to make over payments every month. This results in you building up your equity in the property. Nice!

Similarly, if you’ve had some big repair bills or other expenses, then you can cancel the over payment for that month. Just make the interest-only payment until your cash flow improves.

houses to let
Your buy-to-let portfolio


Mortgage lenders will typically want at least a 25% deposit . The borrowing level will be assessed based on the rental income covering the mortgage interest by a certain margin, typically 125%.

If you’re inexperienced, then it’s a good idea to seek advice from an independent mortgage broker– choosing the wrong product could be a very expensive mistake to make, so allow yourself plenty of time and research your options.

And finally, don’t forget the fact that it’s your name on any mortgage agreements. Although you hope- and expect -your tenants to be making the monthly repayments, they may not – leaving you responsible for meeting those expenses. Therefore take care not to overstretch your budget and always have a good sized contingency fund…just in case.

Further help: you may wish to visit www. This is Money- I always believe that it contains some sensible and impartial advice, so it’s worth seeing what they have to say.

They’ve partnered with L&C Mortgages, which claims to be the UK’s leading fee free mortgage broker to help you to find which could be the best buy-to-let mortgage for your purposes.

Homecoming Letting Agency has no affiliation with any financial company, so any advice you may be offered will come with no benefits to us. We just want to help our clients to make the best decisions.

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