Buy to let mortgages are not a rocket science and are easy to
understand. They are intentionally created for investment properties. Buy-to-let
mortgages take into account rental income as well as owners salary.
Lenders expect that rental income will cover mortgage payments. Only few will
allow rental cover of 100% of mortgage payments as most commonly accepted rental
cover is 125%. Extra 25% are required to cover insurance payments as well as to
cover periods of void, when property is empty. Normally rental cover is
calculated on an interest only basis.
To buy your first buy to let property you need to have at least 15% deposit, but
in the current market 25% is not uncommon.
Buy-to-let mortgages have gone a long way in the last couple of years.
Previously the domain of super wealthy or professional landlords, they were
neither flexible, nor cheap.
As property market was flourishing and a demand for rental properties was all
times high, many new landlords have entered the buy-to-let arena.
Lending policies have changed dramatically as lenders were keen to get into
buy-to-let business. Interest rates have been substantially reduced and now they
are approximately the same as residential rates.
Landlords undergo normal credit checks when applying for a buy to let mortgage
as for a normal residential product. Their income should be at least ?18000 per
annum, but most lenders will expect it to be ?20000 and above, as landlords are
liable for mortgage payments even if property is unoccupied.
There are now many buy-to-let mortgage products available on the market to suit
different landlords. As with residential products there are flexible products,
which allow to make overpayments, there are fixed and tracker rates.
When choosing a buy to let mortgage, you need to know what it is you are looking
for. If you may consider selling your property or expect to repay part of your
mortgage in a short period of time, then mortgage with an early repayment
charges is not an appropriate option.
Lenders insist that property will be let out on a Shorthold Tenancy Agreement
and require that landlords will obey current regulations. Landlords are obliged
to carry out repairs and maintain the property, apply for licence in case of
multiple occupations, check that appliances and furniture are safe. Many lenders
insist on energy performance certificates.
If you are inexperienced and don’t know where to start, it is a good idea to
speak to an advisor, who will help you to get on to the right track.
