Buy to Let Mortgages

Since its inception in the mid 90’s, the buy to let market has excelled and come an extremely long way.

A buy to let mortgage is designed for people who wish to purchase a property to rent out to others. The ability to repay this type of mortgage is often based on the projected rental income from the property as opposed to the personal income of the borrowers.

Renting properties and taking the steps to becoming a private landlord should not be seen as an easy way to make money. As with all things there are risks involved and with no experience or the right guidance, situations are likely to arise, causing you to face complications. However, an increase in school leavers heading to university, immigration continuing at a steady rate and affordability issues preventing many from buying their own homes, demand for rental property remains keen and becoming a private landlord can be financially rewarding.

There are several differences between buy to let mortgages and conventional residential mortgages:

1. The decision of whether your mortgage is accepted from an affordability point of view is mainly based on the rental income the property can generate. In these circumstances, personal income is not normally considered, however recently lenders are requesting to know what your personal income is to ensure that if at any point the property is not rented, the mortgage payment can be sustained.

2. Buy to let mortgages may have higher rates and fees associated.

3. Changes in recent taxation laws on Buy to Let mortgages now means landlords are restricted in what they can offset as tax relief against their rental income. It is imperative to speak to a qualified accountant to discuss your options.

3. Buy to let mortgages may require a larger deposit – typically a minimum of 20% or 25% of the property’s value is required as a deposit.

When becoming a private landlord your primary objectives are income and capital growth. In other words, you are looking to a) make a profit from your rental income every month and b) also hope for property prices to rise. The location, condition and demand is crucial in your decision when purchasing a property.

We strongly recommend you speak and discuss your requirements with one of our Buy to let specialists for advice and guidance.

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