What is a Buy to Let Mortgage?
Buy to let mortgages are designed for people looking to become landlords by buying a property and then renting it out to tenants. Using the revenue gained from renting the property to tenants, the owner can meet the mortgage repayment, and normally maintain the buy to let property to a suitable standard for tenants as well. Effectively, buy to let mortgages allow buyers to purchase a property and then make it pay its own mortgage. The increased use of buy to let mortgages in the past decade has been seen by many to have had a very positive impact on the UK housing market, driving house prices higher, whilst at the same time expanding the selection of accommodation available to rent and creating better standards of rented housing.
These type of mortgages can make you money and, when the mortgage is eventually paid, leave you with more than one property to your name, without massive expense.
What’s different about a buy to let mortgage?
Buy to let mortgages are slightly different to standard mortgages, due to the nature of the investment and the rental income. Interest rates are likely to be higher with a buy to let mortgage, but these can be offset by the amount of rent charged by the owner. A buy to let lender is likely to lend 80 per cent of the value of the property to the borrower. The term of the buy to let mortgage is normally between 5 to 45 years, whereas standard mortgage terms are normally between 5 and 25 years.
What are the risks involved?
Buy to let borrowers normally live in a separate property to the one they are renting out to their tenants. For this reason, void periods when there are no tenants in the buy to let property can be very problematic; as well as keeping up repayments on your home, you will have to meet the repayments on your buy to let property out of your own pocket. This is a risk you would do well to take into consideration before getting a buy to let mortgage. There are, however, ways of protecting yourself and any properties you may own. There are insurance products available on the market to cover buy to let contingencies, which will help you with repayments should your buy to let property become vacant for a long enough period of time. Your buy to let mortgage lender can provide you with information on insurance products like these.
Are buy to let products readily available?
Buy to let mortgages are available from many high street banks and building societies; you usually do not have to use a specialised lender to find one. It may be advisable, however, to use an independent mortgage broker to search all the buy to let mortgage products on the market, not just those offered by high street banks and building societies, in order to find the best one for your needs.
November 13th, 2008 at 5:57 pm
Interesting that “driving prices higher” in the first paragraph is seen as a “very positive impact”, especially given the problems for first-time buyers, and now the threat of negative equity for many.