Buy to let mortgages are specialist mortgages designed specifically for investment property.
Buy-to-let market has grown considerably in recent years. Purchasing a property and receiving a rental income has become a very popular investment. Buy to let is regarded by many as a safe long term plan as in time investor should see property value appreciation.
Previously lenders considered buy to let mortgage to be a more risky business, than residential and as a result were charging higher rates. In the last few years, situation has changed and we have seen a substantial reduction in buy to let rates. Borrowers should be prepared to put a deposit of a minimum of 15%, but more likely 20-25%.
In addition to a large deposit, lenders will expect rental income to cover monthly mortgage payments and often will expect it to be greater than mortgage payments by about 25% as landlords have to cover maintenance and repairs, pay a fee to a letting agency and pay for a building insurance.
Lenders will normally require property to be adequately insured and let out on a Shothold Tenancy Agreement as well as to comply with relevant rules and regulations.
Borrowers own income and credit rating are taken into consideration as they are expected to cover mortgage payments at the periods of void.
As with residential mortgages you can choose between an interest only and a repayment mortgage.
Some lenders may ask for an evidence of a repayment vehicle, but others will be happy to accept that mortgage will be repaid through sale of the property. There are hundreds of products available on the market and you can choose between fixed and variable rates. If you are new to buy to lets, it may be worth speaking to a mortgage advisor and consider different options.
Plan ahead and try to foresee your nearest future, as a buy to let morgages chosen should not restrict your actions. For example, if you are planning to repay a big chunk of your mortgage in a year or so, 5 year fixed rate mortgage may not be the best option as you may end up paying hefty early repayment charges.