The buy to let mortgage sector is booming as both amateur and professional landlords take the chance to make some money from property. The best way to do this is with buy to let mortgages.
Buy to let mortgages have been around for more than a decade, pioneered by the Association of Residential Letting Agents (ARLA). Buy to let mortgages are mortgages that are specially designed for property investment. Unlike previous property investment mortgages, they are not at commercial rates and take account of the income potential of the property. Here’s how they work.
Buy to let mortgages are specialist products despite the fact that property investment is so common. That means that they available only from certain lenders and that the interest rates may be slightly higher than for standard residential mortgages. A key question that lenders ask is about rental cover.
This is the amount by which the potential rental income exceeds the interest that will be due on the mortgage loan. Typically, lenders ask for about 125 per cent rental cover, though this may vary.
Loan to value ratios for this type of specialist mortgage are lower than for residential mortgages. Some buy to let lenders cap their loan to value at 65 per cent, while others may go as high as 85 per cent. That means you need to have a deposit, especially for your first buy to let mortgage. After that, you may be able to use your existing buy to let property as security for the new mortgage.
Buy to let mortgages encompass the full range of UK mortgage products. You can get fixed and variable rate mortgages, or use an offset mortgage to reduce your outstanding balance quickly, You can even get a buy to let mortgage if you have poor credit as many of the buy to let mortgage lenders also specialise in this sector.
When taking out a buy to let mortgage, lenders may ask about the management of your rental property, particularly if you are a first time landlord. Paying professional letting fees is a cost to be considered in assessing the overall cost of your buy to let mortgage.
It is essential to make sure that the property you have chosen is suitable for rental. Pay attention both to the location and to the condition of the property. And be warned, not all lenders lend on all property types so ask around to make sure that you have selected the right lender for the property you plan to let out.
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