Property Buying Guide

Buy to Let Advice: Buy to Let Mortgages

Because of the rise in buy to let properties, many mortgage lenders offer specifically designed buy to let mortgages at competitive rates. If you are a first time buyer, with no proven record of paying a mortgage, the lender will make more rigorous checks to ensure that you can afford to meet the repayments. The lender may impose age restrictions as well as specifying a minimum income.

Buy to let mortgage lenders may consider that they are taking more of a chance with a buy to let mortgage with a first time buyer, so you may be expected to find a larger deposit than if you were taking out a residential mortgage. The minimum may be 15 per cent of the purchase price but you will almost certainly find figures more in the region of 20-25 per cent, depending on your circumstances and possibly the type of property you are looking at. The lender may also charge slightly higher interest rates and you may pay higher arrangement fees than you would with a residential mortgage.

Each mortgage lender will have a method in place to calculate the amount you can borrow. The rent you will be paid must usually be around 130 per cent of your monthly mortgage repayments. So, for example, if your monthly mortgage repayment is £1,000, your tenant should be paying you rent of a minimum of £1,300. The lender will also want to be assured that the property you are proposing to buy is a good long-term investment. You also need to think about whether you could afford repayments if there is a rise in interest rates.

Whether or not you have a property already, you will need to seek good mortgage advice as to the most appropriate type of mortgage for a buy to let property. Sometimes an interest-only mortgage may be the best option. However, as we state repeatedly on this website, you should always seek proper financial advice to ensure that the method of repayment is appropriate for your circumstances.

To stress again, a buy to let property should be viewed as a long-term investment and not something you undertake with a short-term view. With the right market conditions, you could see a return on your capital in the short term but there is always the possibility that house prices may fall.

The Government is now allowing the use of buy-to-let property within people's pension portfolios (primarily Sipps - self-invested personal pensions). This may give more advantages from a tax as well as an investment flexibility point of view. This particular area is relatively new and complex and you should take professional financial advice to see if it is appropriate to your circumstances. A qualified financial adviser should be able to provide you with more information on the proposed legislation.


More buy to let advice:

Buy to let – for first time buyers and everyone l How much can you borrow? l The tax situation  lThe hidden costs l Finding a suitable property l Your responsibilities as a landlord l Letting agents l Tenants l Furnished and unfurnished properties l Buy-to-let useful websites l Buying Property Abroad 

Useful Links: 

www.arla.co.uk
www.cml.org.uk/
www.landlords.org.uk/
www.direct.gov.uk/
www.rics.org.uk/