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An Introduction to Buy To Let Mortgages

Posted by  on May 13, 2010
 
A buy to let mortgage is a type of mortgage that is available in the UK for investors looking for a property to purchase which they will then rent or let out to tenants. There is a different kind of mortgage available for buy to let properties because of the different needs of homeowners versus landlords, and the financial risks to the home buyer and to the bank or lender.

Renting out a home, especially in a place like the UK where housing is precious, can be a very effective way of earning a living or at least of earning some extra income. To be sure that you can meet the monthly payments, however, the UK lenders and banks will want to look at the income potential of the property before they approve a buy to let mortgage. They will want to know that the rent that you charge will be enough to cover the mortgage on the home, and in many cases they will not even look at your own income as a viable supplement to that rent.

Buy to let lenders will also want to see a larger down payment than the average loan because of the more risky nature of a buy to let mortgage. Because you will not be living in the home, it is assumed that you will not have as much investment in it, and might therefore be more likely to let payments lapse or otherwise forfeit on the loan. In addition, the interest rates on a buy to let mortgage loan will likely be higher for the same reason, with less person investiture in the loan, they want to make sure of two things. The first is that they make their money off of you, and the second is that you really want the loan enough to pay for the extra interest.

There are two primary reasons to apply for a buy to let mortgage in the UK, the first being an interest in procuring a home to rent out in order to provide yourself with a steady stream of income. This means renting your investment house out at a rate of approximately 135% of the payments on the mortgage to help cover costs like repairs, a property manager, and legal insurance.

The other reason for a buy to let mortgage is capital growth, which is accomplished through the increasing value of the home that you have mortgaged. While you wait for this home to increase in value, it is a wise idea to keep it occupied in order to offset the cost of buying it and making the mortgage payments. Finding an investment property means finding a property in a neighborhood that is known for increasing prices. A London townhouse, for example, is almost guaranteed to go up in price in the intervening years, and a buy to let mortgage will allow you to buy it and rent it out. You can even begin buying up multiple homes to increase your capital worth over time.

Buying homes to let is a great idea in a depressed market if you can afford to do so, because many people will be looking for places to rent when they cannot get a mortgage loan, and you can make income on your homes while waiting for the market to rise again, when you can decide between increasing the rent on your homes for increased income, selling the homes to make money on the rising equity, or leaving things as they are (the option that your tenants will likely prefer, of course).

However you choose to do things when the market swings up again, a buy to let mortgage or even several buy to let mortgages can help you to accrue a means of making an income that, if not guaranteed, is at least likely. Home buying for investment is not without risk, but no good investment is.

Regular mortgages often require that you live at the residence that you are buying. Otherwise they will likely charge you large amounts of interest and require a large down payment. Banks that are used to dealing with investors, however, will offer you a buy to let mortgage which is still more expensive than a mainstream mortgage in the UK, but which is also designed with your needs in mind.

Buy to let mortgages are the only real option if you intend to invest in homes in the UK, especially if you are planning on renting out the home as a source of income while you own it. These mortgages are more expensive than a traditional mortgage because of the increased risk to the bank, but the extra income potential is worth it.

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