Buy-to-Let Mortgages
The UK buy-to-let mortgage market will always be here due to the need for rented properties. Many of the top mortgage lenders offer specifically designed buy-to-let mortgages at extremely competitive rates. But if you are a first time buyer with no proven track record of making repayments, the lender will make more rigorous checks to ensure that you can afford to meet them and may also impose age restrictions as well as criteria such as a minimum income.
Lenders are sometimes of the opinion that they are taking more of a chance with a buy-to-let mortgage, so you may be required to produce a much larger deposit than if you were taking out a residential mortgage. The minimum can sometimes be as low as 15 per cent of the purchase price but will be more likely account for 20-25 per cent, depending on your circumstances and also the type of property you are looking to purchase. So, in order to purchase an investment property costing £125,000, you would need to provide a deposit of at least £18,750, and there is no real way round this. In addition, the lender will most likely charge a slightly higher interest rate and arrangement fee for a buy to let mortgage than they would with a standard residential mortgage.
Each mortgage provider will have a method in place to calculate the amount you will be allowed to borrow. The rental income you will be paid must usually be around 130 per cent of your monthly mortgage repayments. So, for instance, if your monthly mortgage repayment is £800, your tenant should be paying you rent in the region of £1,040. The mortgage lender will also want to be assured that the property you are proposing to purchase is a good long-term investment. You also need to take into consideration whether you could afford the repayments should there be a rise in interest rates. Most buy-to-let investors try to choose interest-only mortgages on either two or three year fixed rate deals: however, it is essential to seek specialist mortgage advice from independent mortgage advisors first.
Although there is a great deal of buy-to-let mortgage information around on the internet and in magazines, we would recommend that you seek buy-to-let advice from a mortgage broker. They will know he most appropriate type of buy-to-let mortgage for your property and tailor their recommendations to your own specific circumstances. A buy-to-let mortgage broker will also know all the best buy-to-let mortgage deals at any given time. In many cases an interest-only mortgage may be the most suitable option. With an interest only buy-to-let mortgage you can make greater income tax savings but then at the end of the term you may still have the entire mortgage loan outstanding.
Certainly a buy-to-let property should be viewed as a long-term investment and not something that you undertake with a short-term view. Most experts in the industry believe you should be looking at a 10-15 year term to see a reasonable return on your investment. With the right market conditions, you may possibly see a return on your initial capital investment in the short term but there is always the possibility that house prices may fall. Always remember to take into account that you will also have to pay Capital Gains Tax when you sell a buy-to-let property as it will not be your principal residence.
We would always recommend that you seek expert advice from a reputable independent financial advisor before entering into any mortgage or loan agreement.
