Buy to Let

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What is a buy to let mortgage?

Buy to let mortgages are for borrowers who wish to rent properties out. Normally, the rent revenue covers the mortgage repayment, which means that your tenants pay your mortgage for you. Buy to let mortgages were introduced in the mid-1990s, and through their popularity they have boosted house prices in the past.

Buy to let mortgages differ in a number of ways to ordinary mortgage products.

Firstly, buy to let borrowers are normally lent up to 80% of the value of the property, and for this reason buy to let interest rates are usually higher. In order to strike a fair and accurate mortgage deal, when applying for a buy to let mortgage, the terms are calculated using the projected income from the tenant’s rent, rather than the borrower’s personal income. Lenders also usually specify that rental revenue must be 130% of the interest repayment amount, but lately lenders have specified only 100-120%, making buy to let mortgages even easier to acquire.

Which buy to let mortgage is right for you?

Finding the right buy to let mortgage product for your situation is key to making sure that your investment is a sound one. Most high street banks and building societies have a range of different offers, so it is advisable to shop around before deciding on which is right for you.

Repayment buy to let mortgages are the most common type. In this case, you will own the property outright at the end of the mortgage term provided that you meet with all repayments. This is achieved by paying most of the interest in the first years of the mortgage, with some payment going towards the capital repayment. In the second half of the term, more of your payments go towards the principle amount borrowed and less on the interest, which continues until you have paid the entire balance.

A different way of paying for your property is through an interest-only buy to let mortgage. This is cheaper initially, as you only pay off the interest every month. At the end of the term, however, you will still owe the principle amount borrowed, meaning that you will need a large lump sum available at this point. Many people sell the property in order to make the final payment. Alternatively, you could schedule a pension scheme or savings plan to mature at the same time as the end of your mortgage term, releasing the equity to pay off the mortgage.

The last option for your buy to let mortgage is a mixture of the afore mentioned two mortgage deals. This is known as a mixed mortgage. In this case, each monthly payment goes partly towards the principle amount borrowed, and partly towards the interest accrued. This kind of mortgage can give you the piece of mind that comes from knowing you will not have a potentially unmanageable payment at the end of the mortgage term.

Finding the right mortgage starts with understanding the options available, but the next step is to compare prices on the market. Using an independent mortgage broker or online mortgage comparison can help you to do this quickly and effectively.

The Mortgage Broker

0800 822 3355

 

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