Buying a New-Build Home as an Investment: Mortgages, Deposits and Key Differences
Buying a new-build home as an investment can involve different mortgage requirements, deposit expectations and affordability checks compared with buying a property to live in yourself.
Below, we answer common questions about investment properties, buy-to-let mortgages, the deposits you may need and the key differences between buy-to-let and residential mortgages.
What deposit do I need for a buy-to-let mortgage?
Most buy-to-let mortgages require a deposit of at least 20% to 25% of the property value.
This is usually higher than the deposit needed for a standard residential mortgage because lenders assess buy-to-let properties differently. The deposit size can affect both the mortgage products available and the interest rate offered.
Higher deposits:
- Reduce risk for lenders
- Provide access to better interest rates
If you are considering a buy-to-let purchase, it is useful to speak to a mortgage advisor early so you understand the deposit required and how the rental income assessment works.
What is the difference between a buy-to-let mortgage and a residential mortgage?
A residential mortgage is for a home you live in, while a buy-to-let mortgage is for a property you rent out.
The main difference is how the lender assesses the application. Residential mortgages are usually based on your income and affordability, while buy-to-let mortgages are usually assessed against the property’s rental income potential.
Key differences:
- Residential: based on your income
- Buy-to-let: based on rental income potential
- Buy-to-let typically requires a larger deposit
Choosing the right mortgage type is important, as using the wrong product could cause issues with your lender.
What is an investment property?
An investment property is a home purchased with the intention of renting it out rather than living in it.
Buyers usually purchase investment properties to generate rental income or hold the property as a long-term asset. These purchases are typically financed differently from homes bought as a main residence.
These are typically funded using:
- Buy-to-let mortgages
New build homes can be attractive investments due to:
- Lower maintenance costs
- Energy efficiency
- Strong tenant demand
A mortgage advisor can help explain how investment property finance differs from a standard residential mortgage.
