Buy to Let Mortgage Guide
How does it work?
Let's say you buy a property for £125,000. Most lenders will give
you up to 85% of this amount i.e £106.250 (125 x 0.85). This is the
mortgage you take out, and like a residential mortgage you need to
start repaying this mortgage. You will pay this through the rental
income of the property. Most landlords work on the basis that as
long as this mortgage is covered by the rent today, then in the
medium term property price inflation will protect their investment.
For a £106, 250 the mortgage repayments would be £531 per month
(interest only, interest rate 5% (bank base rate + 1%) or £621
(repayment mortgage, same rate).
No matter which of these options the purchaser chooses their rent
has to be at least £690 per calendar month. This £690 figure is one
that covers the interest payments at today's rate, and should
interest rates go down the numbers still work, however if rates go
up, then this means you can't borrow the full amount allowable under
the lenders' rules.
When is the best time to get a buy to
let mortgage?
The best time to arrange buy to let financing is as soon as your
offer has been accepted for your property. Remember you may make an
offer and it may not be accepted. As soon as you have got an
acceptance, buy to let mortgages are relatively straightforward to
arrange.
Sometimes however you may be in competition for a property
against other landlords. In these cases, some lenders offer "forward
buying facilities" to landlords. These are best utilised by
experienced landlords and if you are buying your first buy to let
mortgage, you may need to establish a rapport with a lender in order
to be in the position to do this.
The competition for buy to let properties usually occurs when
landlords are buying property "off-plan", this is when a property is
being built and flats, for example, are sold out of this building.
Who offers buy to let mortgages?
The answer to this is simple, nearly every lender has a buy to
let offering. Which is the best for you? This is harder to say, much
harder. There are probably as many different types of buy to let
schemes as there are residential schemes in the UK.
Many high street lenders offer buy to let schemes, some are
suitable for the first time buyer, others may only be suitable for
the experience landlord. Some of the most competitive deals are only
available through introducers/brokers. The reason for this is that
buy to let lenders know that these introducers will present their
cases to them in the manner in which they like. They allow the
introducer to do what they perceive as difficult, ie selling the
product or explaining how the buy to let mortgage process works. In
this case the lender will take some administration and lend and not
do much else.
Why get a buy to let mortgage?
Most people need a mortgage in order to purchase the property
they are thinking of investing in. Some may be lucky enough to have
the cash. Even those with cash may choose to purchase such a
property through a mortgage, as this may have tax benefits to them.
Overview
of buy to let mortgages |
