What is a Buy-to-Let Mortgage?
This is a mortgage for property you want to buy and then let out for rent. The amount you receive in rent may be over and above the mortgage payments and will help to offset the management and maintenance costs of the property.
It is imperative to find the best buy to let mortgage rates as this may determine whether you can afford the buy to let investment. Lenders offer very competitive rates, asks your adviser to source them for you. It is imperative to set yourself a budget. Make sure that when you add in to your calculations the size of the deposit, renovations plus any new furnishings you may need to purchase.
Check out our buy to let calculator borrow amount and buy to let rental amount.
Most lenders look at a loan to value (LTV) of between75% to 85%, so this could limit what you can afford to buy.
Buy to let is based on a potential rental rather than affordability. However in more recent times the decision is based on the estimate given by the surveyor as to what the rental might be.
Some lenders do work on a 10% or 11% deposit.
Remember that you are responsible for making the mortgage payments even if you have not received the rent so it’s important that you consider the following:
- How will you repay the mortgage if the property is without a tenant for any length of time?
- What happens when interest rates rise and the rental doesn’t cover the mortgage payments? (Consider having a savings account where you can hold the deposit and spare rent money).
- You may need to evict your tenant/s. This can take time with Solicitors and may end in you going to Court.
- In addition to wear and tear, tenants may also cause damage to the property.
- Beware that renting out a property can also affect the income tax you pay.
Lenders will have their own special conditions such as having a formal short-term tenancy agreement and appropriate insurance.
Many lenders will not expect your existing income to meet both commitments, but the rental income must be more than the mortgage payments (usually between 20 and 45% more) a suitably qualified valuer may need to confirm this.
- Minimum property value of £30,000 - £40,00
- Will not consider a studio apartment/bed sits (in more expensive areas like London this may not be the case)
- Flats above shops may be ok however some lenders will not lend against those flats that are situated above a food shop.
Your Adviser will be able to source the right buy to let mortgage solution that meets with your requirements. Call 0800 279 8000 and let us search the market on your behalf.
As a rule Buy to let mortgages are not regulated by the Financial Services Authority (FSA) however this is not always the case if the property is to be let to immediate family members. Many lenders will consider the application but just ensure that they are properly authorised.
If you are looking at a Buy to let occupancy and should 40% or more of the property is to be mortgaged will be or is intended to be occupied as residential accommodation by you or a related person, then your mortgage will be regulated.
Useful Links
Association of Residential Letting Agents
http://www.aria.co.uk
Ombudsman for Estate Agents
http://www.oea.co.uk
UpMyStreet
http://www.upmystreet.com
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