In This Guide
Administration
Being a landlord
Buy to let investment
1. Risks
2. Investment yields
3. Buy to let costs
4. Buy to let mortgages
5. Empty properties
6. Landlords and tax
7. Non UK resident landlords
8. Household insurance
9. Rental and legal insurance
Choosing the property
Finding tenants
Letting property
Lettings agents
Levels of service
Preparing the property
Problem tenants
Tenancy
Buy to let investment
Buy to let mortgages
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When buy to let was first introduced as a specialist scheme in 1996, there was only a small number of lenders providing a very limited choice of loans. This is no longer the case. There are now upwards of 50 lenders who may be willing to arrange a buy to let mortgage.
Today's mortgage market contains a large number of special products that are aimed specifically at the buy-to-let market. These mortgages do not differ vastly from other mortgages - you can usually find discounted, fixed, capped and base rate tracker buy-to-let mortgage rates. You can now even find some buy to let mortgages with flexible features. However, there are three key differences in comparison to standard mortgages:
You will have to pay a larger deposit. Normally, you have to stump
up no less than twenty percent of the property value as a deposit
for a buy-to-let mortgage, though you can now get away with as
little as 15% with some lenders. With schemes where the demands
for a deposit are not so tough, that will usually mean you are
paying a higher rate of interest. Conversely, to take advantage
of the most competitive mortgage rates, you may have to raise
twenty-five, thirty, or even forty percent of the property value.
As a rule, buy-to-let mortgage rates are not quite as competitive
as other mortgages, costing you perhaps a few tenths of a percent
extra in interest each year. Since you are not paying back the
mortgage directly to the lender and will probably be relying on
your tenants to pay their rent, the lenders see buy-to-let mortgages
as more risky than other types. This means that you have to pay
a higher rate to compensate them for the higher level of risk.
Lenders will normally incorporate a proportion of the rental income
when calculating how much money they are willing to lend you.
Unlike other mortgage schemes, where the lender may stick fairly
rigidly to the income multiples that they use, this allows you
to purchase property beyond your normal price range - provided
that you can raise the deposit.
Often, expected rental income must exceed the mortgage repayments by a certain percentage, sometimes as high as 150% of the repayments. Some lenders will only consider the size of your deposit and the rental income when assessing how much you can borrow. Others will also take into account your own status and income and allow you to borrow more.
You an also often buy more than one property with buy to let mortgage schemes, again provided that you have sufficient funds for a deposit. There may be a maximum limit to the number of properties that the lender will allow you to have, therefore limiting your overall exposure to the market. There will also normally be a total maximum loan.
Always be slightly wary of over-stretching yourself - remember that you cannot guarantee you will always have tenants in the property, and if it is vacant, you will have to foot the mortgage bill on your own.
Another common requirement is that the property is let and managed by an ARLA letting agent on an assured shorthold tenancy agreement.
Different lenders will have different lending criteria. Please
refer to our section
on mortgages for more information. It can be worthwhile getting
professional financial advice in order to discuss the whole matter
of your property investment, mortgage selection and application
and the other costs and financial products that you may choose
or be required to obtain.
Click
here to find mortgage lenders in SiteFinder.
Click here to find IFAs in SiteFinder.
There are a range of mortgage calculators that can help you understand and choose between a variety of mortgage products in our calculators section. Click here for more details.
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