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UK Buy To Let Mortgage
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Buy to let Mortgage

Mortgage advice for landlords and property investers

 

Buy to Let Mortgages are mortgages specifically designed for people who want to invest in the property market by purchasing one or more houses and letting them out to tenants for a rental income

 

The Owner is then able to benefit from any appreciation in the capital value of the house itself. They are also likely to be able to maintain the property and meet much of the loan repayment from the revenue realised by letting.

 

Property is bought on a buy to let basis as an investment, often as a wave of saving for ones retirement. Equities and pensions have performed poorly in recent years and a buy to let is seen as an ideal way of saving for one's future. On average a buy to let investor looks to hold a property for a period of 17 years after which they will sell and as house prices tend to rise, the equity value in the home should have risen enough top provide the landlord's with a decent profit which can then be used to help fund for retirement.

 

The buy to let phenomenon has driven house prices higher over the last few years while making a broader section of rental accommodation available.

 

Buy to let mortgage products are sometimes known as Residential Investment Loans, or Landlord Mortgages

 

 

How does buy to let differ?

Buy to Let mortgages are very similar to standard mortgages where the owner lives in the property, the key differences are in the terms of the mortgage.

 

A landlord is usually expected to make a greater deposit than a residential mortgage, typically as much as 20%. The amount the mortgage provider is willing to lend being restricted to 80% of the value of a property. For example, the deposit will be £80k for an £320k mortgage on a property worth £400k.

 

Interest rates are also likely to be slightly higher than those associated with a standard mortgage agreement (on average 0.5% to 1% higher). Higher deposits and interest rates are applied to reflect the increased perceived risk of mortgage payment being partly reliant on income gained from tenants, and having tenants live in the property to be mortgaged.

 

On the plus side with a Buy to Let Mortgage the rental revenue of the property will also be considered as income when considering the ability of the buyer to meet the ongoing mortgage payments. Plus the term of a buy-to-let mortgage is also more flexible, with lenders offering mortgages with terms in the region of 5 to 45 years.

 

 

Buy to let planning

When buying to let it is important to know the market in which you will be trying to let your property. It may be worth getting help from a letting agent who knows the area. A letting agent will know what is in demand, local trends, future developments in your chosen area, and what the likely pitfalls will be.

 

Avoiding void periods - the time when the property is empty and you receive no rental income, will be your primary concern once you have become a landlord. A wise landlord will do everything he can in advance to minimise the likely length of these periods, and ensure the mortgage can still be paid.

 

Insurance is now available to cover buy to let contingencies, and most mortgage companies should offer information and advice about this when you first apply.

 

By planning carefully and purchasing wisely you ought to get a property which requires little maintenance and is attractive to tenants.

 

 

Buy to let products

Almost all high street banks and building societies now offer a buy to let mortgage product. Independent mortgage broker will also be able to recommend many more mortgage products which are not available on the high street and which will more perfectly meet your buy-to-let mortgage requirements

 

Buy to Let Mortgages can be obtained in the name of an individual or individuals or in that name of a company or partnership. The lender has security in the property, so that if the borrower cannot keep up repayments under the terms set up with their mortgage, the lender can repossess property, to sell it and obtain their money back.

 

The terms and conditions of a mortgage (or debt) will require the mortgagee to repay their debts at a frequency agreed at that outset. This is usually monthly and and frequency is stated before contract is signed.

As with any mortgage the longer the repayment period, the more interest on the loan is usually charged. Interest charges are made by that lender in order to make a return on the money that they are lending to the landlord. These interest charges will vary from lender to lender.

 

Landlords must choose between fixed, variable, capped to flexible interest charges. With fixed rates interest mortgages, the interest rate is fixed for a period of time and does not alter, and is generally the easiest option as this enables the mortgagee to budget each month to know exactly what the monthly repayment will be relative to rental income form the tenants.

 

After the fixed rate period of time is complete, often that mortgagee is free to shop around and find a better deal – however typically during the fixed period penalty charges for a re-mortgage between lenders are levied. Typically once a fixed period has finished penalty charges did not apply.

 

Before the loan is approved in principle the underwriter will expect to see how the landlord is planning to budget for the monthly mortgage payments, and what his  anticipated profitability of the let may be.

 

Taking account of the average cost of repairs, maintenance and most importantly, unplanned rental void periods is expected.

 

Your lender may also ask you use an accredited Association of Residential Agents letting agent confirm the rental value in writing and also manage the property for the first 6 - 12 months. The was set up in 1996 improve the quality and number of private rental properties in the UK. This gives the lender more confidence you are investing prudently.

 

Under some landlord lending loans, you have the scope buy more than one investment property into a portfolio. Products like a ‘currency mortgage’ have recently been introduced for these high net worth individuals. These products are managed in a way that borrows money at the lowest possible interest rate amongst a suite of currencies. The Swiss franc has become particularly popular due its long term stability and low rate (relative to the US or far east.)

 

 

The risks involved in Buy to Let

The popularity of landlord borrowing products has reached a point where some south eastern areas of the UK are seen as highly risky in terms of the short to medium term return on investment proportions. You should always be aware that if you cannot make your mortgage payment you may be at risk of losing the property.

 

However, as the huge demand for rental housing continues and the number of new properties being built continues to lag behind demand, buy to let is still and attractive investment option in many areas of the UK. In 2007 house prices increased by around a 8-10%.

 

Our mortgage experts can offer you free and independent advice on buy to let. It is completely unbiased with no obligation.

 

 

 

 

 

Value of Property  
£
(eg 135000) 
Value of Mortgage
£
(eg 85000) 
Type of Mortgage