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 Money
Page > Mortgages
> Buy To Let Mortgage - UK Guide
 In a
nutshell
A buy to let mortgage is designed to help
you buy a property for investment purposes - i.e. to rent out
to other people.
Best
Mortgage For
Investors, cash rich individuals,
professional landlords, people who want to invest in the
housing market rather than risk their savings in the stock
market, people wanting to buy a holiday home and parents with
children at college.
Mortgage Type
Your
mortgage choice used to be a bit limited here but it's now
possible to find most types on offer depending on the lender
you choose. These mortgages are becoming increasingly popular
nowadays and lenders have responded to this by making them
more accessible. So, you can get similar types of deals to
standard domestic mortgages such as fixed rates, capped deals,
discount offers and variable rates, for example.
Typical
Amount to borrow
Lenders borrowing amounts vary.
Some will base what they will let you borrow on your salary at
standard rates (i.e. approx 3-4 times your salary or 2.5-3
times you and your partner's salary for example). Some will
use your salary and your expected rental income to make their
calculations. But, you'll probably find that the amount you
are allowed to borrow will be based on your potential rental
income for the property. In this case, your lender will want
your income from letting the property to exceed your monthly
repayment on the mortgage before they will approve your loan
amount.
Deposit
Lenders
expect a higher deposit for buy to let properties with the
average borrowings limit set at between 75-85% - so you'll
potentially be asked to find up to a 25% deposit. Some lenders
will, however, let you remortgage your current home to raise
this cash.
Advantages
Buy to let
mortgages have become more popular in general because of the
recent boom in house prices. Whilst the stock market has shown
disappointing returns in recent years, house prices have risen
steadily. So, a buy to let mortgage is one way of investing
for the future as property is often seen as a safe bet. These
mortgages are often now used by parents with children of
college age. As they will now be responsible for paying all
accommodation costs, many parents are simply getting a buy to
let mortgage for a property in their child's college town.
They then bring in extra income by letting out the remaining
rooms to their friends. Once their child has finished college,
they can either sell the property or carry on letting it. If
you are planning on moving into serious property investment
and anticipate buying more than one property over time, some
lenders will help you to build up a portfolio by letting you
remortgage on buy to let mortgages to fund the purchase of new
properties. And, if you go for an interest only product you
can off set your payments against tax and save some extra
cash. So, buy to let mortgages can be used by just about
anyone as a 'safe' investment. In the best case scenario,
you'll see good returns on your investment in the future and
will make a little extra profit right now.
What to
look out for
Chances are you'll be charged higher
interest rates for a buy to let deal - but you can still get
some good rates by shopping around. A good tip is to go for a
fixed or discounted deal for a few years and then to switch to
another deal or a different lender when that runs out to keep
costs as low as possible. You won't be allowed to borrow as
much here as you will with a standard mortgage product so
you'll need more for your upfront deposit. There are also
other financial implications involved in becoming a landlord.
For example, you'll have to maintain the property and make
repairs - this can eat into your profits quite significantly.
You'll also need to take out specialist buildings, contents
and legal insurance as necessary. You may also choose to have
the property managed by a lettings agency rather than do it
yourself - this will cost you an average of 15+% of your
rental income. And, some lenders won't give out buy to let
mortgages unless you commit to using a lettings agency in the
first place. You'll also have tax implications here - your
income will be taxable although you can offset certain
expenses and costs.
The main problem many consumers
come up against is the area in which they buy. It's vital to
do research here as you don't want to be paying for a buy to
let mortgage in an area with falling house prices. If property
prices fall then so will local rents - so you need to be
careful that you can cover your mortgage repayments if this
does happen. You'll also have to factor in the fact that you
might have gaps in rental income between tenants etc.
Alternatives
If you
own all or most of the property you currently reside in then
you could look at remortgaging that to raise buy to let cash.
You can also look at taking out a commercial/business
mortgage.
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