Buy To Let Mortgages

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What is a buy to let mortgage?
A Buy to Let mortgage is a loan which allows a borrower to purchase a house to rent out rather than live in. Until relatively recently, this type of borrowing was very rare because lenders tended to regard it as a commercial arrangement and would charge much higher fees and rates of interest. Today, things have changed with a relaxation of lending criteria and many more products are available on the market.

Buy to Let Mortgages have grown quickly in popularity over the last few years, and now account for about 1 in every 15 mortgages in the UK. Although buying a property to rent out to someone else might seem like the sort of thing only an experienced investor might do, lots of First Time Buyers have entered the Buy to Let market as a way of getting a first foot on the property ladder.

Why buy to let?
Many people today look at Buy to Let as a form of investment for the future. Over the longer term, property has historically outperformed most other forms of investment (even the stock market) and so a Buy to Let property could turn out to be a very valuable ‘nest egg’.

Buying a property to rent out can be a fantastic long-term investment. Not only could you benefit from a rise in property prices, but you could also receive an income over and above the mortgage repayments in the meantime (although that income will be subject to tax).

However, being a landlord brings with it responsibilities and you have certain legal obligations to your tenants. You should think carefully and take proper advice before considering a Buy to Let mortgage.

When considering if you can afford a Buy to Let mortgage, it is important to look at factors such as future interest rate rises, maintenance costs and other fees you might incur, such as Letting Agent Fees as these will all have an impact on your profit margin. You also need to consider the area where you are buying and do some research to find out how much other similar rental properties charge.

How do I apply for a buy to let mortgage?
Taking out a Buy to Let mortgage is much like applying for a standard mortgage – you still have to fill in the application, supply financial information and the Lender will want to have a Valuation done on the property to make sure it is in good order and a worthwhile investment.

One key difference is in the amount you can borrow. Lenders will normally want to see a larger deposit on a Buy to Let property than if you were buying the house to live in yourself. They will also want to see that the Rental Income is more than enough to cover the mortgage payments. Typically, a lender will insist that rental income is at least 130% of the mortgage repayments - so if your repayments are £1000 per month, your rental income must be at least £1300. Some lenders now offer 100% so as long as your rent covers your mortgage payments then that’s OK. A few lenders now disregard rental income and will take earned income into the factor.

This helps to ensure that the mortgage will still be covered even if interest rates go up, as you need to consider future movements of interest rates before deciding on whether or not you can afford a Buy to Let property.