Buy-To-Let Mortgages Explained
BATTLECALL GUEST EXPERT: Peter Kenney, Loan Officer
Buy to let is becoming more and more popular because of low interest rates and the seemingly attractive income generated from rental property. If you are thinking about buying a house to let, then you need to know about buy-to-let mortgages. These mortgages are fairly new, and are slightly different from normal mortgages. Here are some useful tips to help you decide about buy-to-let mortgages:
How are buy-to-let mortgages different?
Buy-to-let mortgages are different from traditional mortgages; mostly in the way that the amount you can borrow is calculated. With a traditional mortgage, the amount you can borrow is based upon your income. With buy-to-let mortgages, the amount you can borrow is based both upon your income and the possible rental income you will earn. This can allow you to borrow more money than you would normally be able to for a mortgage. However, any mortgage you have on your current home will reduce the amount that you can borrow
What are the costs?
Buy-to-let mortgages are like normal mortgages and so their price varies from lender to lender. However, in general they are more expensive than normal mortgages. Lenders will usually lend you up to 85% of the property value, although you can better deals if you put down 20 or 25% as a down payment. The interest rates are usually higher than traditional mortgages, but the prices have come down as more lenders enter the market. The amount you can afford to repay should be looked at against the amount of rent you will earn. Generally, the rent you are going to obtain should be around 130-150% of the mortgage repayment.
Where can I get a buy-to-let mortgage?
Buy-to-let mortgages can be obtained from an increasing number of lenders. One of the largest agencies is the Association of Residential Letting Agents (ARLA), although there are other alternatives and it pays to shop around for the best deal.
What are the dangers?
The dangers, as with any mortgage, are that you won't be able to make the repayments. This is even more of a danger for rental property, because if the property is not currently being rented you are losing valuable income, whilst still paying the mortgage. If you cannot rent your property for a while then you could lose both your rental property and your regular home because of mounting debts. Make sure that the property you choose is desirable and that there is demand at the price you want to charge. Also, you need to remember that buy-to-let mortgages are not regulated in the same way as regular mortgages, and so you are more open to being misled. However, if you are going to buy a property for investment, then a buy-to-let mortgage might be the best option for you. They are especially useful if you are looking to invest in a property that is slightly above your normal budget.
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