Mortgage Guide

Buy-to-let Mortgage Guide

The UK buy-to-let mortgage market is growing fast and because of this rise in buy-to-let properties, many mortgage lenders offer specifically designed buy-to-let mortgages at very competitive rates. But 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, and may impose age restrictions as well as specifying a minimum income.

Lenders may consider that they are taking more of a chance with a buy-to-let mortgage, 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 could be more like 20-25 per cent, depending on your circumstances and possibly the type of property you are looking at. So, in order to buy an investment property costing £80,000, you would ned to put down a deposit of at least £12,000, and there is no real way round this. In addition, the lender may also charge slightly higher interest rates and arrangement fees for a buy to let mortgage than they 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. Most buy-to-let investors choose interest-only mortgages on two to three year fixed rate deals: however, it is essential to seek specialist mortgage advice from an independent buy to let mortgage advisor first.

With an interest-only buy-to-let mortgage you make greater income tax savings, as mortgage interest attracts tax relief on buy-to-lets, but at the end of the term you may still have the entire mortgage loan outstanding.  Although there is a great deal of buy-to-let mortgage information around in magazines and online, we recommend you seek buy-to-let mortgage advice from a mortgage broker. They will know he most appropriate type of buy to let mortgage for a buy-to-let property and suit their recommendations to your own specific situation.  The buy-to-let mortgage broker will know all the best buy-to-let mortgage deals at any particular time. Sometimes an interest-only mortgage may be the best option. With an interest only buy-to-let mortgage you make greater income tax savings but at the end of the term you may still have the mortgage loan outstanding. 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. 

A buy-to-let property should be viewed as a long-term investment and not something you undertake with a short-term view. Most experts believe you should be looking at a 10 - 15 year term to see a reasonable return on investment. 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. Don't forget that you will also have to pay Capital Gains Tax when you sell a buy-to-let, as it will not be your principal private residence.

You cannot gain a tax advantage from putting residential property into a pension portfolio, or SIPP (self-invested personal pension). The Government announced that they were going to allow this in April 2006 but then backtracked at the last minute. You can only put commercial property or something like a share in a hotel or student hall of residence into a SIPP but not property used as someone's home. It is now extremely unlikely that this, or any subsequent government, will now allow residential property to be wrapped up in a SIPP, and this applies to properties abroad as well as in the UK.

This particular area is relatively new and complex and you should take professional tax 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.

Tenancy Deposit Protection Schemes

All tenants' deposits must now be protected and landlords taking deposits must sign up to a government-approved scheme. One scheme is custodial-based, while the other is insurance-based. With the custodial scheme, you must hand over the entire deposit to an interest-bearing fund administered by The Deposit Protection Service; with the insurance-based scheme, you hang on to the deposit yourself but must protect it by taking out annually renewable insurance.

To find out how much you can borrow and what it would cost, contact a  buy to let mortgage advisor.

Other mortgage guides, advice and useful pages:

Mortgage Comparison - First Time Buyer Mortgages - About First Time Buyer Mortgage Advice - First Time Buyer Mortgage Brokers - Remortgages for First Time Buyers - Shared Ownership Mortgages - Help with Mortgages for First Time Buyers - Mortgages for Parents of First Time Buyers - Shared Appreciation Mortgages - Joint Mortgages - Financial Advice for First Time Buyers - Overseas Mortgages for First Time Buyers - Request First Time Buyer Mortgage Advice - Find your First Property - New-Build Gifted Deposit Deals - Best First Mortgages Comparison Table

Features, advantages and disavantages of specific first time buyer mortgages:

100% Mortgages l Cashback Mortgages l High LTV Mortgages l Graduate Mortgages l Professional Mortgages l Mortgages with Parents l Guarantor Mortgages l Family Offset Mortgages l Mortgages with Friends or Family l Mortgages at University l Rent a Room Mortgages l Affordable Mortgages l Interest only Mortgages l Part Repayment Part Interest Mortgages l Interest-free Start Mortgages l Shared Ownership Mortgages l Poor, Adverse or Poor Credit Mortgages l Key Worker Mortgages l Shared Equity Mortgages

Useful websites:

www.arla.co.uk – association of residential letting agents
www.landlords.org.uk - association of landlords
www.cml.org.uk – council of mortgage lenders